Over the last few years, we have written articles on the issue as to whether a worker would be classified as an Employee (EE) or an Independent Contractor (IC).
The determination of the status of the worker is very important, since the conclusion may impact such issues as:
1. General Liability: Who is liable for the actions of the worker? It often could be the employer who stands responsible if the worker is an EE. However, if the worker is deemed to be an IC, the IC may be the only party responsible.
2. Tax issues: If a worker is deemed to be an EE, the employer may have to provide a minimum wage, unemployment benefits, vacation pay, retirement pay, and many other benefits that often accrue to an EE, but they often do not accrue to the IC.
3. Application of Various Laws: The laws that apply to an EE as opposed to an IC are very different in many settings. Normally, the burden on the company retaining the worker has more liability and responsibility when the worker is deemed to be an EE as opposed to an IC.
We examined this area in detail relative to the cases that were generated around the US in the last few years, especially those conflicts involved in California as to the EE vs IC issue.
The concern with a resolution of this issue is important in many fields, including companies connected with real estate. When looking to real estate, it is clear that many of these EE vs IC settings will arise.
We examined a now famous Case from 2018, the Dynamex decision out of Ca. That conflict involved this issue of whether the workers were EE or IC. The workers were delivering goods in many states in the US. However, the focus of the Case were deliveries in Ca. and whether the workers were EEs in Ca.
From the point of the decision on this Dynamex Case, Ca. has had a series of cases and legislative actions, among others, to address the decision and the implications of treating a worker as an EE or IC. Here is a summary of most of the events impacting this issue in Ca. following the Dynamex Case.
1. In 2018 the Dynamex lower court (Superior Court) eventually held the Dynamex Case fits the class action criteria. Thus, the decision would impact many parties. It further did not support the traditional tests to decide when a worker was an EE or IC.
2. Because of these issues, there were appeals to the Court of Appeals in Ca.
3. The Ca Supreme Court held workers for Dynamex would be determined to be an EE or IC, not on the basis of the time honored “Control” test, alone, where courts looked almost exclusively to the degree of control exercised by the company over the given worker.
(Many cases for years, prior to this Ca. Supreme Court decision, looked to factors such as the degree of control. Was it substantial, such as controlling the hours worked, place of work, and related items for the worker, along with supplying tools for the job as well as directing the steps in the jobs performed. If this degree of control was present, this was supportive of the determination that the worker was an EE. This position of control was compared or opposed to just contracting for an “end result,” which end result position was more akin to finding the worker was an IC. This situation might arise in settings, for example, where the worker was contracted to put a new roof on a building, i.e., the end result. The company desiring such roof would not provide the step-by-step approach for such work, nor the tools for the same.
The Dynamex Supreme Court, however, moved away from this traditional test of control as the only or major factor to resolve this question. The Supreme Court, looking at the Court of Appeal’s decision, found that the “suffer or permit to work” view was a key criterion to make the decision. However, the Court went further and said that for an entity to not be considered an employer, the entity seeking this position, Dynamex in this Case, had to meet a 3-part ABC test, viz.:
A. The worker is free from the control and direction of the hiring entity;
B. The worker performs work outside of that performed for the hiring entity; and
C. The worker is customarily in an independent business or occupation as the nature of the work performed by the hiring entity.
This ABC test in Dynamex was not met, concluded the Court. (The burden to show the 3-part test is met is on the hiring entity that desires to argue the worker is an IC.)
4. To shore-up the decision by the Ca. Supreme Court, the Ca. State Legislature passed AB 5 in 2019. The law, effective in 2020, supported the same conclusion as the Ca. Supreme Court in Dynamex.
5. Recall that this was a class action, and many companies were impacted by this decision. Companies such as Door Dash, Lyft and Uber, among others, questioned their ability to now do business in Ca.
6. Uber gave notice to the State of Ca. that it would be leaving Ca. and no longer do business in Ca., because of the Dynamex decision and AB 5.
7. Legislators faced strong opposition by the members of the public, given the decision by Uber to leave Ca. in face of the position of AB 5.
8. The Legislators concluded that they should have a referendum, Proposition 22 (Prop 22), to allow the voters to decide if there should be exceptions to AB 5, thus allowing for Uber, et al, to remain in Ca.
9. Ca voters strongly supported Prop 22.
10. Uber concluded it would stay in Ca., given the exception that allowed the Company to treat its workers as IC. (See AB 5 and AB 2257.)
11. A suit was filed to challenge the position of Prop 22. The Alameda Superior Court held in 2021 that Prop 22 was unconstitutional.
12.The lower Court position was challenged by an appeal to the Ca. Court of Appeals. That Court held that Prop 22 was valid. (3/2023)
13. On the State level of Ca., the question is now one of whether, if requested, certiorari will be granted by the Ca. Supreme Court on this issue. (2023)
Creating a related issue:
While the conflict was taking place in Ca. on this EE vs IC issue, actions were taking place in the Federal Courts that also addressed AB 5.
1. In the Federal Courts, involving a different action than those discussed above, as to whether AB 5 was constitutional, an action was filed in 2019. The District Court held AB 5 was valid. That is, that the approach as to who was an EE vs IC was valid.
(This action was brought under the Case of Lydia Olson, Perez, Postmates, and Uber v. State of Ca.)
2. This Case was appealed to the 9th Circuit Federal Court. The Circuit Court held that the District Court erred. The Circuit Court reversed in part and remanded the Case. This decision in large part supports the attack on AB 5. It is worth noting that Prop 22 was not in existence when this Federal action was filed.
It is not certain what will take place. However, at this stage, both Ca., by the latest decision in Ca. on this issue, and the latest decision by the Federal Courts, support a conclusion that many workers will be classified as IC.
By Professor Mark Lee Levine
University of Denver