Carl Kanowsky: The $25K question: employee or independent contractor?
By Signal Contributor
Wednesday, August 15th, 2018

As you’ll recall, Charles Lee, that 15-day wonder from Dynamex (the document-delivery service company), sued Dynamex, challenging that he should have been considered an employee rather than an independent contractor, contrary to the agreement he’d signed when he went to work for the company.

Now, 13 years after his brief stint at Dynamex, the California Supreme Court has ruled on Charles’ allegations. So, is a driver that delivers documents for a company that postures itself as a document-delivery company an employee or an independent contractor?

You may ask, what difference does it make what agreement two parties make in a private transaction? The Supreme Court forcefully addressed that question.

“Although in some circumstances classification as an independent contractor may be advantageous to workers, as well as to businesses, the risk that workers who should be treated as employees may be improperly misclassified as independent contractors is significant in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers as independent contractors.

Such incentives include the unfair competitive advantage the business may obtain over competitors that properly classify similar workers as employees and that thereby assume the fiscal and other responsibilities and burdens that an employer owes to its employees. In recent years, the relevant regulatory agencies of both the federal and state governments have declared that the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue and millions of workers of the labor law protections to which they are entitled.”

Now that we know why it’s important to examine whether a worker is an employee or an independent contractor, how do businesses and workers know how to determine which is which?

For decades, courts have used a multifactor test from a 1989 decision in a worker’s compensation case to resolve that issue. Boiled down to its essence, the question was the amount of control the business had over the person it retained to do a specific job: a lot of control — employee; not too much control — independent contractor.

But the challenge came in weighing how much control would tip the scales one way or another. Just as one person’s wine is the epitome of taste, another may find it to be simply swill. Similarly, many felt too often judges reached what some thought were questionable decisions.

So, SCOTUS decided it was time to simplify matters. Setting aside the Borello multifactor test, the Supreme Court ruled: “An individual worker who has been hired by a company can properly be viewed as the type of independent contractor to which the wage order was not intended to apply only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably have been viewed as working in the hiring business.”

Thus, “When a clothing manufacturing company hires work at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company, when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes, the workers are part of the hiring entity’s usual business operation and the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees.”

Under this standard, a company will have a heavy burden to disprove employment.

Merely asserting that the worker provides services outside of the company’s normal business will fail.

Instead, the company must establish “(a) that the worker is free from control and direction over performance of the work, both under the contract and in fact; (b) the work provided is outside the usual course of the business for which the work is performed; and (c) the worker is customarily engaged in an independently established trade, occupation or business (hence the ABC standard). If the hirer fails to show that the worker satisfies each of the three criteria, the worker is treated as an employee, not an independent contractor.”

In a word, this ruling is huge, and will have long lasting impacts going forward. Dynamex’s seemingly insignificant decision to bring on Charles Lee for 15 days changes everything. Now, if a company hires a worker to provide a service that is the essence of that company’s business, the worker is an employee.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at cjk@kanowskylaw.com. Mr. Kanowsky’s column represents his own views, and not necessarily those of The Signal. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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Carl Kanowsky: The $25K question: employee or independent contractor?

As you’ll recall, Charles Lee, that 15-day wonder from Dynamex (the document-delivery service company), sued Dynamex, challenging that he should have been considered an employee rather than an independent contractor, contrary to the agreement he’d signed when he went to work for the company.

Now, 13 years after his brief stint at Dynamex, the California Supreme Court has ruled on Charles’ allegations. So, is a driver that delivers documents for a company that postures itself as a document-delivery company an employee or an independent contractor?

You may ask, what difference does it make what agreement two parties make in a private transaction? The Supreme Court forcefully addressed that question.

“Although in some circumstances classification as an independent contractor may be advantageous to workers, as well as to businesses, the risk that workers who should be treated as employees may be improperly misclassified as independent contractors is significant in light of the potentially substantial economic incentives that a business may have in mischaracterizing some workers as independent contractors.

Such incentives include the unfair competitive advantage the business may obtain over competitors that properly classify similar workers as employees and that thereby assume the fiscal and other responsibilities and burdens that an employer owes to its employees. In recent years, the relevant regulatory agencies of both the federal and state governments have declared that the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue and millions of workers of the labor law protections to which they are entitled.”

Now that we know why it’s important to examine whether a worker is an employee or an independent contractor, how do businesses and workers know how to determine which is which?

For decades, courts have used a multifactor test from a 1989 decision in a worker’s compensation case to resolve that issue. Boiled down to its essence, the question was the amount of control the business had over the person it retained to do a specific job: a lot of control — employee; not too much control — independent contractor.

But the challenge came in weighing how much control would tip the scales one way or another. Just as one person’s wine is the epitome of taste, another may find it to be simply swill. Similarly, many felt too often judges reached what some thought were questionable decisions.

So, SCOTUS decided it was time to simplify matters. Setting aside the Borello multifactor test, the Supreme Court ruled: “An individual worker who has been hired by a company can properly be viewed as the type of independent contractor to which the wage order was not intended to apply only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably have been viewed as working in the hiring business.”

Thus, “When a clothing manufacturing company hires work at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company, when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes, the workers are part of the hiring entity’s usual business operation and the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees.”

Under this standard, a company will have a heavy burden to disprove employment.

Merely asserting that the worker provides services outside of the company’s normal business will fail.

Instead, the company must establish “(a) that the worker is free from control and direction over performance of the work, both under the contract and in fact; (b) the work provided is outside the usual course of the business for which the work is performed; and (c) the worker is customarily engaged in an independently established trade, occupation or business (hence the ABC standard). If the hirer fails to show that the worker satisfies each of the three criteria, the worker is treated as an employee, not an independent contractor.”

In a word, this ruling is huge, and will have long lasting impacts going forward. Dynamex’s seemingly insignificant decision to bring on Charles Lee for 15 days changes everything. Now, if a company hires a worker to provide a service that is the essence of that company’s business, the worker is an employee.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at cjk@kanowskylaw.com. Mr. Kanowsky’s column represents his own views, and not necessarily those of The Signal. Nothing contained herein shall be or is intended to be construed as providing legal advice.