Boom? Is the California Supreme Court About to Blow Up the Test for Independent Contractor Relationships?

california-independent-contractor-dynamex-boomThe California Supreme Court may be about to rewrite the test for Who Is My Employee? under California wage and hour law.

Independent contractor relationships that have stood the test of time may be in jeopardy.  And I don’t mean the (mildly?) entertaining Alex Trebek kind of Jeopardy. We’re talking real economic upheaval and uncertainty — worse than Schwarzenegger taking over Celebrity Apprentice.

Here’s the issue:

Employee vs. Independent Contractor

For years, disputes over whether someone is an independent contractor or employee under California wage and hour law have been analyzed under the test set forth in S.G. Borello & Sons, which is a hybrid test that combines elements of the Right to Control Test with elements of the Economic Realities Test. It is a multi-factor balancing test.

Joint Employment

On the other hand, disputes over whether a company is a joint employer under California wage and hour law have used a broader test, based on a definition from the Industrial Welfare Commission and intended to bring more companies under the umbrella of joint employment.

The IWC defines “employer” so broadly that the California Supreme Court has said that a company can be a joint employer merely by permitting someone to perform work or by not preventing the person from working. Martinez v. Combs, 49 Cal.4th 35, 69 (Cal. 2010).  In the Martinez case, the Court used this broad definition to hold Company B responsible for violations by Company A, where Company B benefitted from the work.

In summary, the more balanced S.G. Borello test has been used to determine whether a worker is an independent contractor or an employee; but once it has been determined that the worker is an employee, then the broader IWC/Martinez test has been used to determine whether a second company is that worker’s joint employee.

The California Supreme Court may be about to change that. (Boom?)

Why Dynamex is a Case You Need to Watch

The case to watch is Dynamex Operations West v. Superior Court, Case No. 222732.

The issue before the California Supreme Court in that case is whether the much broader IWC/Martinez test should be used instead of S.G. Borello to determine (for class certification purposes) whether someone is an independent contractor or an employee, under California wage and hour law.

This may sound legalistic and arcane, but it’s important.

If the Court changes the test for determining whether someone is an independent contractor or an employee, the result could be mayhem.

Imagine that you built your business around laws that have been well-settled for decades, and a judge changed those laws overnight. At the stroke of a pen, the business is in disarray.

Independent contractor relationships in California have been built around the assumption that the S.G. Borello balancing test applies, and this test has provided California businesses with reasonable guidelines for structuring and maintaining independent contractor relationships.

If the California Supreme Court changes the test, however, it will become extremely difficult to maintain a true independent contractor relationship in California.

If the IWC/Martinez test were to be used instead of S.G. Borello, then an independent contractor would become an employee if the person who retained the contractor permits the worker to perform work. If a person retains a contractor to perform work, however, then of course the contractor is permitting the worker to perform the work. That’s why the person retained the contractor — to do the work.

It is difficult to see how the IWC/Martinez standard could be applied to the real world. The California economy has evolved to include tens of thousands of legitimate contractor relationships. If these were all suddenly deemed to be employment by the stroke of a judge’s pen, there would be serious economic repercussions and vast uncertainty.

Consider these common situations:

  • A small shop owner permits a solo janitorial contractor to clean after hours, and the janitorial contractor cleans for several businesses each night. Is the janitorial contractor now an employee of every one of those businesses?
  • A homeowner allows a pool service to clean the pool twice a week, and the pool service cleans dozens of homeowners’ pools every week. Does the pool cleaner now have dozens of employers?
  • A retiree has a standing appointment with a trusted car driver to take her to appointments each week, but the driver also gives rides to dozens of other customers every day. Is the driver the employee of every customer who permitted the driver to perform work?

The unintended consequences could have severe effects on California’s economy.

The parties are still submitting briefs in the case, but the possible consequences are not so far-fetched as you may think. The case made it to the California Supreme Court because a Court of Appeals ruled that the IWC/Martinez test should be used instead of S.G. Borello. The issue is real.

Oral argument is expected to occur this summer, and a decision is likely later this year.

Dynamex is a case to watch in 2017.

For more information on joint employment and other expected labor and employment law developments under the Trump Administration, join me in Los Angeles Feb. 22 or Houston March 29 for the 2017 BakerHostetler Master Class: Labor and Employment Law under the Trump Administration. Attendance is complimentary, but advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com.

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