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Good News for Misclassified Workers

By Doug Parker, Executive Director

I was recently chatting with our building's maintenance person about the sale of our building. The new management told him he was being converted from employee to “independent contractor,” although so far as I can tell his job hasn't changed. This kind of summary conversion of employees to contractors in order to save costs and shift traditional employer obligations to workers has become common over the last 20 or more years. The trend has fueled job insecurity, rising inequality, and negative health outcomes for California workers.

The California Supreme Court’s recent landmark decision in Dynamex Operations West v. Superior Court (Dynamex) has created great hope among worker activists that people like that maintenance worker — whose jobs fit traditional, common sense notions of an employment relationship — will again have the legal rights and benefits of employees.

Dynamex addresses the question of whether a group of truck drivers that the logistics company Dynamex converted into independent contractors should be treated as employees of Dynamex under California wage laws. To make that determination, Dynamex adopts the “ABC” test, under which an employer-employee relationship is presumed unless the hiring company can show each of the following: (A) it does not control or direct the way work is performed; (B) the work is outside the scope of the company’s “usual course of business” (an auto parts store hiring a plumber, for example); and (C) the worker customarily performs the same type of work in an independent trade or business.  

While the ruling involves the interpretation of a California wage order, it is expected to apply broadly to all California labor laws where courts must interpret the meaning of employer and employee. While the case does not directly impact the narrower definitions of “employee” under federal laws governing union organizing and employee benefits, it carries with it the possibility that employers will reduce the use of independent contractor arrangements to avoid confusion and potential liability, bringing more workers into traditional employment and the ambit of these federal protections.

This decision is long overdue. For years, companies have taken advantage of inadequate legal tests for independent contractor status that allowed them to restructure work to increase profits by squeezing workers. Legal tests intended to be functional, real-world examinations of the nature of the work relationship have devolved into formalistic rules corporate attorneys use to manipulate away workers' rights with relative ease. The fact that employers have been able to convert employees (or their jobs) into independent contractors virtually at will is all you really need to know about how flawed the system has been. 

The business community has mobilized to launch a full-scale assault on the decision. A coalition led by California Chamber of Commerce has written the legislature and the Governor, demanding they take action to nullify the decision. They warn of massive economic damage, an “onslaught of litigation,” and harm to business models backed by “billions of venture capital dollars.” It should be no surprise that Uber, Lyft, and Instacart signed the letter, along with numerous powerful trade associations.

My response to the Chamber? Dynamex is not about a change in the meaning of employee. It is about getting rid of blinders that have prevented the courts from seeing work relationships for what they really are. Business models that depended on courts not seeing and understanding those work relationships need to adjust and comply with the law, because the massive economic damage to workers must stop.

I hear again and again, most frustratingly from well-meaning progressives, about the inevitability of independent contracting as the new normal for workers. The Dynamex drivers, their lawyers, and the California Supreme Court just showed us it doesn’t have to be that way, and I applaud them for it.