The Dynamex Decision and Workers’ Compensation

A recent California State Supreme Court Decision has sent a shockwave through many industries and may adversely affect the way a lot of companies formed themselves, and will affect their business model. It is important to note that the Dynamex v. Lee decision was brought to the court as a Wage and Hour issue about the use of Independent Contractor delivery drivers (Lee) and the delivery company itself (Dynamex). But the decision put forth a new test for classifying whether a worker is an independent contractor or actually an employee.

Under the new ruling, California firms seeking to classify a worker as an independent contractor must show:

1) That the company does not direct the worker in the performance of their job.

2) That the worker performs work outside the scope of the company’s typical business (such as a freelance artist who designs fliers for a moving company).

3) That the worker has made the affirmative decision to go into business for herself, perhaps by incorporating or starting an LLC.

Failing any one of these three qualifies the worker as an employee.

Now again, the ruling was based on a Wage and Hour issue (overtime) brought by the claimant, but we have seen these types of rulings affect other issues like the Workers’ Compensation market that currently uses the 1989 S.G. Borello & Sons, Inc. v. Department of Industrial Relations ruling — which was a completely different litmus test on who is an employee and who is an independent contractor. Like most things, this will have to be played out and defined through new litigation which will likely come from the transportation or construction industries. Companies like UBER and LYFT will be obvious targets along with possibly FedEx Ground, UPS, any government or tech sector jobs that use independent contractors to write code and only work for that agency or company.

The possible side-effects of this ruling can be extremely far reaching and cause businesses to rethink and alter their current business models when and if this is applied to Workers’ Compensation and Health and other benefit packages (401 Ks and Pension Plans).

So it is a wait and see thing, but something has got to give, and it is my professional opinion that Dynamex will overrule existing precedents and big changes will need to be made in order to avoid suit in this arena. It is something that all companies should get out in front of and at least prepare for the inevitable.

If you have any questions or comments about this or any other Workers’ Compensation related issue, feel free to contact me.