INDEPENDENT CONTRACTOR vs. EMPLOYEE UPDATE
Last year, the California Supreme Court decided Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which dramatically expanded the scope of workers who are properly classified as employees instead of independent contractors. At a practical level, this means that more workers are entitled to the benefits of being an employee, including minimum wages, overtime pay (if not exempt), and expense reimbursements. Companies that fail to adjust to the new Dynamex standard face significant potential legal liabilities.
As discussed in our previous post from April 2018, Dynamex replaced the longstanding Borello standard with the “ABC” test. Prong B of the ABC test precludes businesses from using independent contractors to deliver or provide their core product or service. Under Borello, the longstanding prior standard, many companies and industries built the use of independent contractors into the core of their business models (think Uber or Lyft). Those companies and industries now face serious legal challenges to their business model.
Two new decisions have strengthened the Dynamex decision. First, Dynamex did not decide whether the ABC test applies retroactively. Second, Dynamex did not decide whether its scope was limited to coverage under the Industrial Wage Commission’s (“IWC”) Wage Orders or if its holding generally applied to the Labor Code as a whole.
On May 2, 2019, the Ninth Circuit found that Dynamex applies retroactively under California law in Vazquez v. Jan-Pro Franchising International, Inc. On May 3, 2019, the Division of Labor Standards Enforcement (“DLSE”), California’s wage and hour enforcement agency, issued a letter opining the ABC test applies to both the IWC Wage Orders and any Labor Code provisions that enforce requirements set forth in the Wage Orders. Even though the Ninth Circuit opinion and DLSE opinion letter are not binding authority on California courts, they are persuasive and likely indicate that Dynamex is here to stay (at least until the California legislature addresses the issue).
Given the expanded scope of Dynamex, companies should consider auditing all independent contractors to ensure that they are properly classified. Independent contractors should also assess their classification and determine whether they have been and will be properly compensated.