From left, Luke Wake, John Kabateck and Assemblymember Jim Patterson lead a workshop on the Dynamex court decision and AB 5.

Assemblyman Jim Patterson (R-Fresno) hosted a workshop last week on changes to independent contractor laws stemming from the California Supreme Court’s Dynamex decision and a related state law recently proposed.

Patterson was joined by John Kabateck, the director of National Federation for Independent Business (NFIB) in California, and Luke Wake, a senior attorney at NFIB. The Craig School of Business at Fresno State hosted the workshop.

Local business owners attended the workshop to learn more about the possible effects of the court ruling on the business community, and to ask questions on what they should do from this point forward.  

In April 2018, the California Supreme Court made a controversial court ruling in the Dynamex Operations West Inc. V. Superior Court of Los Angeles case that sets standards to determine whether a worker is an employee or an independent contractor. It has been dubbed the “ABC” test.

“My concern is that this really is an attack by the state of California on independent contracting and individuals in a free society who wish to use their labor as they see fit,” Patterson said. “I think it’s going to especially effect smaller to medium-sized operations that utilize independent contracting for a lot of good reasons.”

Towards the end of May, the state Assembly passed AB 5, which would codify standards adopted last year by the court decision. The bill will now go to the Senate.

AB 5 creates exemptions for certain workers to remain independent contractors, including doctors, dentists, lawyers, architects, accountants, engineers, insurance agents, investment advisers, direct sellers, real estate agents, hairstylists and barbers who rent booths at salons, as well as marketers and human-resources professionals with advanced degrees.

The case stems from a lawsuit filed in 2005 by two employees working for Dynamex, a same-day delivery and courier service, for being classified as independent contractors instead of employees.

In 2004, the company adopted a new contractual agreement with its delivery drivers, classifying them as independent contractors, and requiring them to provide their own vehicles for work and cover fuel, vehicle maintenance, vehicle liability insurance and all taxes and worker’s compensation insurance costs.

After nearly 13 years in court, the court made is final decision and embraced a standard presuming that all workers are employees instead of contractors, placing the burden on any entity classifying an individual as an independent contractor, requiring that the classification can pass the “ABC test”.

The court ruled that a worker could only be classified as an independent contractor if each three factors of the “ABC” test were met:

 

A: That 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 fact.

 

B: The worker performs work that is outside the usual course of the hiring entity’s business.

 

C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

 

Part of Wake’s work at the NFIB is helping business owners understand business laws and regulations to make sure owners are up-to-date.

Wake said that it is more attractive to an employer to classify a worker as an independent contractor rather than an employee.

“If you actually have to treat someone as an employee, that means there is a lot of red tape, especially in California,” Wake said. “The whole panoply of employment and labor laws that confer rights upon workers only apply with regards to employees, so you can certainly save yourself a lot of red tape and headache by treating someone like an independent contractor.”

Wake added that by treating a worker as an independent contractor instead of an employee, employees save on costs such as insurance and worker’s compensation.

Wake advises business owners to talk to their employment lawyers and to pay attention to any developments regarding employment law.

Kabateck, who lobbies at the state capitol and works with legislative members, said that this is the first time in American history that such a test has been ruled by the courts, and not the legislative process, which grants more opportunity for hearing, discussion, deliberation, and scrutiny, and called the ruling “unfortunate and disturbing”.

“I think this case, and the ruling that came down, is nothing more than a misunderstanding and a misconception of what freedom and flexibility in the workplace is all about,” Kabateck said. “I think the pretense in creating this is a great misunderstanding and a perception that business owners have a zeal to manipulate, but it’s the exact opposite. I think employers and workers in the state want the freedom and flexibility to do the right thing and actually have a work-life balance that works well, and this completely interferes with that.”

After the presentation, members of the audience asked questions and voiced their concerns regarding their own businesses and offered suggestions on how to stay on top of legislative developments.