DEPARTMENTS LEGAL NEWS


State Supreme Court Redefines Independent Contracting, Expanding Employer Liability


By Ronald B. Pierce A


decision by the California Supreme Court in April 2018 in Dynamex Operations West,


Inc. v. Superior Court has redefined independent contracting in California. Te end result: many more hiring entities are now employers, and many more workers are now considered employees. What is the difference? On one


hand, employers must comply with numerous, sometimes conflicting, state and federal laws about wage, hour, and working conditions, including minimum wage, maximum hours, meal and rest breaks, itemized wage statements, sick leave, and expense reimbursement. Moreover, employers are liable for their employees’ Social Security and payroll taxes and for unemployment insurance taxes, workers’ compensation insurance, and damages that their employees cause to third parties. Tese employment liabilities increase government agency directives and litigation. On the other hand, true


independent contractor classification can allow hirers to avoid employer liabilities, and to enjoy economies, self-determination, and flexibility for businesses and workers that agree. Yet more and more, as seen in this new opinion, California laws deem working relationships as “employment” and impose worker protections and employer liabilities as a matter of law, involuntarily, denying freedom of contract and choice.


Construction Industry Feels Impact


Te construction industry is


uniquely affected, because contractors historically have heavily relied upon subcontractors and some workers as independent contractors. Numerous,


22 September/October 2018


differing legal definitions exist for “employees” and “independent contractors.” Te Dynamex decision does not resolve which definition will be used in what context against construction contractors, but it is ominous in its potential application. Dynamex was a nationwide


package and document delivery service. Before 2004, Dynamex classified its drivers as employees. After that, it “converted” all drivers to “independent contractors” and required them to own their own vehicles and to pay for all of their transportation expenses, including fuel, tolls, vehicle mainte- nance, vehicle liability insurance, taxes, and workers’ compensation insurance. At the same time, Dynamex


still obtained its own customers, set delivery service rates for customers, and individually negotiated what it paid to its drivers.


Requirements for Drivers For the most part Dynamex drivers


could set their own schedules, but they needed to inform Dynamex by Nextel cellular telephone, which Dynamex required drivers to buy. At their sole discretion, dispatchers assigned deliveries. Drivers could decline them but only if they promptly notified Dynamex; drivers were liable for loss if they did not. Dynamex expected drivers to wear Dynamex shirts


The construction industry is uniquely affected by the Dynamex decision, because contractors historically have heavily relied upon subcontractors and some workers as independent contractors.


and badges and for some customers the drivers were required to place Dynamex decals on their own vehicles for Dynamex deliveries. With their own funds, drivers purchased required shirts and other logo items. Generally within same day delivery,


Dynamex drivers could choose their own delivery sequences and routes, unless customers specified otherwise. Drivers could hire other people except Dynamex competitors to make deliv- eries, and drivers could work for other delivery companies besides Dynamex and for themselves. Ordinarily, Dynamex hired its


drivers for an indefinite period of time but retained the right to terminate any driver without cause on three days’ notice.


Class Action Suit Filed In 2005, several Dynamex drivers


filed a class action lawsuit alleging that they performed exactly the same, notwithstanding whether called “independent contractors” or “employees,” and that they remained employees in fact and legally. Te specific legal issue before the California Supreme Court was whether the drivers were “employed” under the applicable wage orders for the transportation industry, which orders set minimum wage, overtime and meal and rest period requirements for non-exempt employees. Ultimately, the Court agreed with


the workers. It imposed employer liabilities and announced an “ABC” test by which a hirer is presumed to be an employer unless it proves three conclusions: (A) Te worker is free from the


control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact. Tus, the hirer’s control of the precise manner,


California Constructor


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28