What Is The Fallout From The Dynamex Decision?

Coming into mid-July, what is the status of the landmark Dynamex decision handed down by the California Supreme Court over two months ago? The court's opinion in Dynamex v. Superior Court of Los Angeles County has a lot of trucking companies in panic mode, scrambling to figure out how the ruling will affect their operations. The ruling could also have a profound impact on many tech companies like Uber, Lyft, Instacart, and others that provide on-demand services.

The majority of gig economy companies' workers are not employees, and so they do not get any health, retirement, unemployment, or other benefits that typically come with full-time employment. Uber uses the term "driver partners" when referring to its non-employee drivers, who constitute the backbone of the company's service.

San Francisco's city attorney issued subpoenas to Uber and Lyft in order to ascertain whether the ride-sharing companies classify their drivers as employees or independent contractors in the wake of the landmark decision.

City Attorney Dennis Herrera will now seek "proof that Uber and Lyft have lawfully classified drivers as independent contractors or provide their drivers with minimum wage, sick leave, health care contributions, and paid parental leave."

"We are not going to turn a blind eye if companies in San Francisco deny workers their pay and benefits," he said in a statement issued in late May. "We are not going to tolerate any company shirking its responsibility to pay for benefits and shifting that burden onto taxpayers when drivers without health insurance turn to the emergency room. If your company is valued at $62 billion, you can afford to give your workers health care."

Last week, attorney's Greg Feary and Chris Eckhart of Scopelitis hosted a webinar to dig into the case and further elucidate what to expect with the independent contractor model going forward.

"It could erode independent contractor status," said Feary. "Of the 86-page dissertation, only five paragraphs are dedicated to how to apply the law to the transportation industry. The rest is an argument for why the ABC test is necessary."

"The ABC is not a multi-factor test. It's a single-factor test; three bites of the apple of the same thing," said Feary. "The issue that predominantly exists across the nation is the Right to Control Test.

The Dynamex court does look at the Economic Realities Test. This is a factor test used to determine the "economic reality" of the relationship between employer and employee.

(Image: Scopelitis webinar)

Feary agrees with the court that the economic reality test does not tend to apply to the independent contractor model. The economic reality test is not the only test the court (and other putative parties) could use to form an opinion, however. "There's also the IRS 20 Factor test and the FedEx Corporation FDX Home Delivery versus NLRD test. The FedEx is a must-read," says Feary.

(Image: Scopelitis webinar)

"In Dynamex, the Supreme Court realized that if you used the 'suffer to permit or work' language literally, it would apply to everyone who did anything," said Eckhart. "The court decided to use the ABC test. Essentially, you can skip right to the B prong. Wage Order Number 9 was looked at in terms of what it was there for. The court said it didn't even matter if the individual didn't have an issue with the law because the social meaning to the state is more important."

"As for the C prong," added Eckhart, "Dynamex decided that independent contractors could be defined as a class."

So, how did the court separate from the Borello test, the previously used test that has stood the test of time for the past 30 years?

"General disapproval of the use of independent contractors," said Eckhart. Borello dictated a "statutory purpose" standard for independent contractors determinations rather than a particular test to apply. Borello applied a common law test for the particular case, but in reality exacted a standard in which a court should apply more broadly as well.

(Image: Scopelitis webinar)

Feary also believes there's a political aspect to the decision where the legal reasoning departs from the law such as it is, and that's the social welfare aspect. "When we deal with Wage Order #9, this justification seems to block the rails when it comes to transportation such as it is in 2018."

The court only applied the test to a very limited purview: only to single drivers, and not working for another company or for personal customers. It said you must define "genuine" independent contractors such as electricians or plumbers.

The court does offer a troubling foreshadowing in Footnote 34, citing to U.S. versus Silk (1947).

(Image: Scopelitis webinar)

Feary said, "When the court looks at the current owner-operator model we believe they will find that the B prong is not necessary to be proven. It's only necessary to state that were the test applied as Plaintiffs argue, then FAAA preemption would be necessary."

Many open questions remain. Does Borello apply to 2802 claims? In footnote 5, the court doesn't address this question. Is the analysis different for business entities, fleets, drivers performing business for their own customers or other carriers and larger trucks?

Does the "exercise control over wages, hours, or working conditions" prong of the precedent-setting Martinez definition from 2010 of "employ" apply outside of joint employment context? Will this test be applied retroactively? The court noted that the language from the wage order on which the test is based dates back to child labor issues.

Will there be impact across the U.S. immediately? "Probably not," said Feary. "It will certainly effect those operating in the state of California, especially as it effects the independent contractor model."

There are at least 25 different industries in California that have banded together to write a letter to the California Governor, asking him to immediately write legislation to stop the Court's decision because it is not good news for California businesses.

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