Under the new standard, the burden is on the employer disputing employee status to prove all of the following elements (referred to as the “ABC” test):
(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in face; and
(B) that the worker performs work that is outside the usual course of the hiring entity's business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The Supreme Court justified it's decision largely on policy grounds, stating that the ABC test was more fair to workers who wanted the “fundamental protections” of California’s Wage Orders, and that using a less employee-friendly standard could create a “race to the bottom” where businesses implement substandard wages and unhealthy conditions by trying to avoid the protections of the Wage Orders.
What Dynamex Means for Employers
Dynamex creates a presumption of an employee-employer relationship that must be disproven by the employer. Employers who classify any of their workers as independent contractors should review the relationship utilizing the ABC test to determine whether the worker has been properly classified.
Dynamex ushers in new challenges to independent contractor classifications, and will most likely generate class or PAGA actions, with significant exposure for damages and penalties. Notably, independent contractors do not sign class arbitration waivers, meaning that even those employers who have protected themselves from class actions through these waivers may be left unprotected. Notwithstanding, Dynamex did not prohibit independent contractor relationships and, under the right circumstances, independent contractor business models can continue to survive in California.
Recommendations
All employers should reevaluate their independent contractor arrangements to determine if these might be in violation of this latest state Supreme Court ruling. If it is determined that the relationship is one of employer/employee, adjustments may have to be made regarding benefits, wage and hour matters and more.