Dynamex Decision Alters Independent Contractor Classification

The California Supreme Court’s ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018) alters the way California businesses must classify independent contractors, even those employed through a sub-contractor. It disrupts California’s established tradition of using independent contractors in many industries.

In a unanimous ruling April 30, the California Supreme Court adopted a new standard to test whether a worker should be classified as an employee or an independent contractor. The new standard in Dynamex uses the “ABC Test,” which assumes that workers are employees unless they can meet the three primary requirements for an independent contractor. The worker must:

• be free from the control and jurisdiction of the hiring company regarding performance of the work;
• be able to perform work that falls beyond the domain of the hiring company’s business; and
• be regularly engaged in a recognized trade that is independently pursued.

While Dynamex establishes a new standard, it also interprets existing law, and has a retroactive effect.

The difference between an employee and an independent contractor is especially significant for those industries that frequently use subcontractors, such as construction, janitorial, transportation and delivery. For example, a construction company may classify its own workers as employees but may use sub-contractors who classify their workers as independent contractors. The misclassification liability will attach not only to the construction company but will also result in personal liability for the individual owners of the construction company.

California employers may be liable, at a minimum, for penalties of 1.5 percent of the wages, 40 percent of Social Security and Medicare (FICA taxes) not withheld, and 100 percent of the matching FICA taxes not paid by the employer.

Fortunately for many California employers and the individual owners of California businesses, there are sensible asset-protection steps that can be taken to protect assets from lawsuits and plaintiffs’ claims.

Jacob Stein Esq. is the managing partner of Aliant LLP. Over the past 20 years Jacob has completed over 3,000 asset protection transactions for both individuals and businesses. To learn more, visit www.maximumassetprotection.com or call (818) 933-3838.