Posted on May 9th, 2019
Below is a complete transcript of this video.
What’s going on, fellow entrepreneurs? It’s John Fagerholm again from Metal Law Group.
And today, I want to talk about a subject that I’ve talked about a couple other times, I think maybe two or three other videos about this. But I just had a real world example of it, so I want to talk about it again because it’s affecting California employers even worse than I thought it would affect them.
So once again, I want to talk about the Dynamex case. And again, for those of you that haven’t seen the other videos or don’t know what Dynamex is, it’s a ruling that came down last year in California and it basically changes what an independent … Or the classification of independent contractors.
And in my opinion, it makes it almost impossible to classify anybody as an independent contractor.
Dynamex has what’s called an ABC test. So previous to Dynamex, there were all of these tests that you would apply to see if somebody’s an independent contractor or if they’re an employee if you were classifying them as an independent contractor.
And some of it was are they independent? Do they use their own equipment? Do they have a corporation? Things like that. But Dynamex changed it and they applied what’s called an ABC test, now.
And the A and the C of it is very similar to what the previous tests were, but it’s the B portion that’s creating problems for everybody. And Dynamex was a trucking case, but it’s actually causing a lot of problems for a lot of other industries, too.
So let me just read what the ABC test is out of Dynamex so that you kind of have a kind of scope of what we’re talking about here. So basically, in order for an employer to show that somebody is an independent contractor and not an employee, the A portion of the ABC test is the employer must prove all of these factors, right?
So A, they must prove 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.
Okay? So that’s very similar to what it used to be before. Now, here’s the problem one, the B.
That the worker performs work that is outside the usual course of the hiring entity’s business, okay? I’ll get to that, specifically, in a second.
And that the worker is customarily engaged in an independently established trade occupation or business of the same nature as the work performed. So that’s very similar to what was before.
So let’s get to the B portion of it because, again, that is the big problem. The big problem is that in order for them to be independent contractors, the work that they must be doing must be something that’s different than the work that your company does.
So that’s where Dynamex, the problem found in Dynamex is that it was a trucking company and they had independent contractors which were truck drivers. So under the old test, they looked like independent contractors, they own their own trucks, a lot of them had their own corporations, they could pick or choose if they wanted to do a haul or not do a haul.
So under the old test, it seemed that they were independent contractors. Now under the new test, because it was a trucking company and they were hiring out truck drivers, they don’t qualify under the B portion of the Dynamex test.
About a week ago, almost a week ago, I was in mediation and it was very similar facts to Dynamex case. My client was a trucking company, the guy suing, actually he was countersuing because my client had sued him first for a breach of contract, and then he counter sued with an employment claim, and his employment claim, basically, was that he wasn’t given lunch breaks or paid for the waiting time when they were loading.
So because he was an independent contractor prior to Dynamex, it was actually a good deal. The deal that my client had with them was actually a good deal for the independent truck driver.
But my client basically took about a little over 20% of whatever the payment was from the company that it contracted with them. So these truck drivers were making 70% plus of the profits. So they don’t want to be employees, either.
They want to be independent contractors because they make more money, they get to choose when they work and when they don’t work. In fact, this particular guy, in nine months, made about 130 grand.
So there’s three months out of the year he didn’t even work. As an employee, he doesn’t get to do that. He doesn’t get to choose when he works, he doesn’t get to choose any of that.
And likely, if it’s hourly, he would get paid less. So, very good deal. However, because he was sued, he counter sued.
And in that counter suit, he claimed that he wasn’t paid for the wait times. So our defense was, well, that he’s an independent contractor and the contract indicates that he’s not going to be paid for the wait times so he shouldn’t.
And that was actually a really good defense and this lawsuit started probably more than a year ago. Suddenly, Dynamex happens and we don’t have a good defense anymore.
So we were in mediation and as we were going through everything, the mediator pointed out to us what we already knew and what we had already explained to the client, which was that if they bring up the Dynamex case, then we’re dead in the water because this person’s clearly an employee under Dynamex.
And under employment laws, they have to be paid for every hour, whether it’s wait time, whether it’s actual work time. And in this case, of course the other side did bring up Dynamex and the mediator pointed out that under the Dynamex case, this is not a independent contractor so our defense wasn’t valid.
Now, I know what some of you are thinking, “Wait a minute, this is a case that was a year old and Dynamex is only about six months old, so how could Dynamex be a problem for you?” Well, that’s the horrific part of all of this and why I wanted to make another video about Dynamex, because Dynamex is just an interpretation of the existing law, it’s not new law, per se.
And so, I haven’t seen any litigation on it, but from the research that I’ve done, this looks retroactive. I think it’s retroactive, the council on the other side, of course, thought it was retroactive, but more importantly, the mediator, going through all of his research, thought this was retroactive.
So what that means for California employers is that you can prepare yourself for Dynamex going forward, but you still have liability under Dynamex going backwards if you have independent contractors.
And that’s a problem because the labor laws is a three year statue of limitation and so basically, from the time that you correct whatever problems you have under Dynamex, you still have risk going backwards about three years.
So anyway, that’s why I wanted to make this video. I think there’s going to be a lot of industries that are going to have a problem because of this case. I think this case came … My opinion, I think the California Supreme Court interpreted it like this because they were going after Uber.
That’s just what I think, that’s my opinion. They’ve been going after Uber for a lot of years and Uber’s defense is that, “We don’t employ anybody, we are a technology company, we’re not in the transportation business.”
And I think that this specifically targets Uber, Lyft, and some of these companies that are similar, and I think that that’s what California intended to do. Now, I don’t have any insight on that, it’s just my thoughts based on following what’s been going on with Uber for the last, I think, three, four years.
Anyway, I urge you guys to look to see what’s going on with all of your independent contractors if you have any. Basically, there’s almost nothing in California that’s an independent contractor these days.
So if you have some, take a look, make sure you’re doing everything properly. And specifically, read up on the Dynamex case so you can kind of understand why you’re at such risk if you’re a California employer and you have independent contractors.
Thanks everybody, until next time.
