The Assembly Labor and Employment Committee today will hold an informational hearing on the decision issued last April by the California Supreme Court that changed the test to determine whether an individual is an employee or independent contractor. California Chamber of Commerce Executive Vice President Jennifer Barrera will be testifying to express the need for the Legislature to intervene and modernize state labor laws.
Barrera will explain that given the restrictive “ABC” test outlined by the court in Dynamex Operations West v. Superior Court (4 Cal.5th 903), the work opportunities of millions of independent contractors could be in jeopardy. The hearing will allow legislators to evaluate whether clarifications are needed in the wake of the Dynamex decision to maintain employee protections, but also protect valuable work opportunities for individuals who prefer the flexibility of working as independent contractors.
Dynamex—The Elimination of Independent Contractors?
The California Supreme Court’s April 2018 decision in Dynamex completely changed the way in which an individual is classified as an independent contractor versus an employee in this state.
Dynamex has far-reaching, negative implications for nearly all sectors of the California economy that utilize independent contractors. In Dynamex, the California Supreme Court abandoned a long-established balancing-of-factors test previously adopted by the court in a 1989 decision, S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (48 Cal.3d 341). This previous approach weighed multiple factors in their totality to account for the variety of California industries and professions, as well as diversity of California’s workers.
Under Dynamex, the court presumes that a worker is an employee unless the hiring entity establishes all three factors of this one-size-fits-all test. This test, referred to as the “ABC Test,” has never existed before in California. It is extremely restrictive and the Dynamex decision marks the first time in U.S. history that any form of the ABC Test has been imposed by a court without any legislative approval.
Under the Dynamex decision, an individual must satisfy all three factors of the ABC Test:
- 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;
- That the worker performs work that is outside the usual course of the hiring entity’s business; and
- That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The “B” prong of the test is the most problematic because many independent contractors work in the same line of business as the hiring entity. As such, most independent contractor relationships cannot survive under the court’s narrow view of the “B” prong. The court decision in Dynamex places the question of employment classification at the intersection of important competing interests—on the one hand, the state’s interest in protecting workers, and on the other hand, every individual’s personal liberty to contract and be in business for him/herself. As indicated by the U.S. Bureau of Labor Statistics (BLS) Economic Release (June 7, 2018), individuals overwhelmingly prefer their arrangement as independent contractors, and the ABC Test adopted by the court jeopardizes that flexible work arrangement for Californians.
California is estimated to have nearly 2 million residents who work as independent contractors. These numbers are conservative as the 2018 BLS Economic Release did not include the number of individuals who supplement their income with online platforms. Many Californians are choosing to work full-time as independent contractors and others are using the opportunity to supplement their income. In fact, 79% of independent contractors prefer it over traditional employment, according to the BLS Economic Release.
The top reasons that motivate individuals to pursue independent work include:
1) to be their own boss,
2) to choose when they work,
3) to choose their own projects,
4) to choose where they work, and
5) to earn extra money.
According to a survey commissioned by Upwork and the Freelancers’ Union, a majority of freelancers who left full-time, traditional employment made more money within a year, are able to work less than 40 hours per week (on average 36 hours), and the majority believe they have the right amount of work.
Dynamex jeopardizes this freedom of choice for individuals and pushes them into a traditional employment model that lacks flexibility. Proponents of Dynamex argue that employers who want to provide flexibility to employees can do so under the current state of the law. However, California’s strict labor laws do not allow for such workplace flexibility.
CalChamber Position
The Legislature needs to intervene and provide clarity to the Dynamex decision in order to balance worker protections with the right for individuals who want to maintain their status as independent contractors. While working as an employee certainly has its benefits, the flexibility, control, and opportunity to earn extra income as an independent contractor is equally important.
Staff Contact: Jennifer Barrera
