Dynamex is a year old. Can you still have independent contractors?

Probably not, if your business depends on them!

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The 2018 Dynamex v. Superior Court case radically modified California’s test for determining when a worker is an independent contractor or an employee and signaled further divergence between state and federal law. As we reported last summer the burden is on a business to show:

  1. It is not able to control or direct what the worker does, either by contract or in actual practice.
  2. The worker performs tasks outside of the entity’s usual business.
  3. The worker is engaged in an independently established trade, occupation, or business.

As businesses from strip clubs to delivery services to home-based cleaning services have struggled to determine how to apply the so-called “ABC Test” of Dynamex to their workplaces going forward, the Ninth Circuit Court of Appeals in May 2019 intensified the urgency of their situation when it ruled in Vazquez v. Jan-Pro Franchising Int’l that the Dynamex decision applies retroactively. Thus, it reversed the district court, which ruled (prior to the publication of Dynamex) that under prior law, the test used to determine the meaning of “to employ” had not been met.

Vasquez went on to opine as to how courts should interpret Prong B, including the district court to which it was remanding the case, suggesting three methods: (i) whether the person’s work is “necessary” to or merely “incidental” to the work of the business; (ii) whether the person’s work is performed continuously for the business, and (iii) what business the business claims to be in.

The first subprong can be reviewed using a “common sense” approach by observing what the business does, and whether the individual does that as well. So a floor measurer’s work is necessary to the business of a carpet retailer, thus, they are in the same business, while an expert providing highly-specialized restoration work does not provide a key component of a business that provides general contracting residential and commercial work. The first subprong can also be viewed through an economic lens, meaning whether the business’s profits are heavily dependent on the revenue brought in through the work of the individual.

The second subprong looks to the enduring nature of the relationship between the business and the individual. A business would not be able to satisfy “Prong B” if it performs the individual’s activity on a continuous basis, but if it occasionally engages the individual, it is more likely to be seen as engaging the individuals for tasks outside of its usual business.

The third subprong examines the self-description of the business. A dental office that advertises the provision of services will likely be deemed the employer of dentists who work in its office. In Vasquez, the business was a multi-tiered franchise operator that provided cleaning services. It claimed that it was not in the cleaning business but in the franchise business, but the Ninth Circuit rejected that, noting that franchising itself is not a business; it’s a model that a business can use to provide its actual business.

The subprongs are merely alternative ways to evaluate whether you as a business might be able to show that particular individuals are performing tasks outside of your business. The analysis will vary by type of business. For example, an automobile dealership is in the business of selling cars and trucks, providing financing for the vehicles, and providing service and repairs. Any individual selling to customers on the floor, operating in F&I, working on vehicles in the service department, and the like, is almost assuredly an employee. Other individual who providing cleaning, porter services, advertising and marketing, or services to the dealership, and not services that contribute directly to the dealership’s profits, or fit within the dealership’s self-description, might meet the definition of contractor.

It is important to remember that the three prongs of the ABC test all must be met by the business to demonstrate independent contractor status. In the dealership example, a worker might be cleaning the store or focused on marketing, and thereby satisfy prong B, but if she is subject to the dealership’s control in performing these duties, or is not engaged in an independently established trade, occupation, or business, she very well might be deemed an employee.

Given the retroactive application of Dynamex, it is more important than ever that businesses review their decision to classify individuals as independent contractors, and engage the services of experienced employment law counsel.