At the end of April 2018, the California Supreme Court issued its decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (Cal. Supreme Court 2018). The decision made a significant change in California law with respect to how employers are to decide if a worker is an “employee” or an “independent contractor.” Under the old rules, the key factual questions involved how much “control” the employer exercised over the worker. For example, did the employer insist upon certain work hours, impose a dress code, require certain behavior with respect to customer service, provide tools and a workspace, and similar considerations. Under the new Dynamex rules, control is still important, but now it is only one of three important factual areas. The other two are:

• Is the worker engaged in activity that is part of the “core business” of the employer and
• Does the work have some independent licensing or certification requirement.

An employer must meet all three requirements to classify a worker as an “independent contractor.”

Examples of Employees vs. Contractors Under the New Law

To give a couple of examples, if you are operating a retail floral shop and you retain an accountant, the accountant can be classified as an “independent contractor.” Accounting services are not the “core business” of a floral shop, the accountant needs independent licensure, and, likely, the flower shop does not exercise much control over the accountant’s work. By contrast, if a tax preparation company like H&R Block hires the same accountant, under the Dynamex rules, that accountant is likely an “employee” since the “core business” of H&R Block is accounting and tax services.

If your San Diego business has employees, an experienced San Diego corporate attorney can give advice and counsel with respect to worker classifications, employee handbooks, and company policies.

Is the Dynamex Decision Retroactive?

One question that was left unanswered by Dynamex was whether it would apply retroactively. In other words, can an employer be liable for misclassifying workers before April 30, 2018 if they properly used the old standard? The liability could be massive. As one example, employers are not required to carry workers compensation insurance for non-employees. Failure to purchase coverage can result in substantial civil penalties.

On November 28, 2018, a federal court in San Francisco recently released a decision raising just that question and declining, for now, to hold that Dynamex is retroactive. The case involved Grubhub drivers. A couple of weeks prior to Dynamex, the court decided that Grubhub drivers were properly classified as “independent contractors” under the old California rules. See Lawson v. Grubhub Inc., Case No. 15-cv-05128-JSC (US Dist. N.D. Cal. November 28, 2018).

Grubhub is an online platform that allows diners to order food from various restaurants and have the food delivered. Because Grubhub did not exercise sufficient hour-by-hour control over their drivers, in March 2018, the federal court held that the drivers were properly classified as independent contractors. However, because the “core business” of Grubhub is food delivery, after the Dynamex decision was released, the drivers argued that under the new Dynamex standard, they should be classified as “employees.” The drivers filed motions with the court asking it to reconsider the March decision.

In late November 2018, the court declined to vacate its March 2018 decision. The court was sympathetic to the drivers but noted that the California Supreme Court had not made Dynamex retroactive. Without guidance from the Supreme Court, the federal court was unwilling to say that employers should be held liable for behavior that was legally proper under the old standard when that behavior was undertaken. The case is now on appeal with the US Ninth Circuit Court of Appeals.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard was recently named as “Best of the Bar” by the San Diego Business Journal for the last four years running. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and the other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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