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Just who is an independent contractor?

A sweeping new California Supreme Court ruling restricting who is an independent contractor is shaking up an exceptionally diverse range of industries.

The ruling, issued in April, affects an estimated 2 million independent contractors working in healthcare, beauty salons, gig economy jobs like Uber and Lyft, journalism, music, real estate, education, financial planning, agriculture, construction, technology, insurance, transportation and more.

The decision is praised by the California Labor Federation as offering workers protections like minimum wage, unemployment, workers’ compensation and disability insurance. But some independent contractors say they like their freedom and have no interest in being employees.

The ruling on Dynamex Operations West Inc. vs. Superior Court of Los Angeles provides a new three-part “ABC” test to determine who can be an independent contractor.

“The interesting rub on this whole issue it’s not a traditional business versus labor fight,” said Jennifer Barerra, senior vice president of policy for the California Chamber of Commerce. “This is really about two different forms of the workforce – a worker vs. worker situation. It’s about whether employees get to choose what status they want to be and what works best for their lifestyle.”

The chamber is coordinating the I’m Independent Coalition, which is asking the state Legislature to allow more flexibility for independent contractors.

The ruling on Dynamex Operations West Inc. vs. Superior Court of Los Angeles provides a new three-part “ABC” test to determine who can be an independent contractor. The ruling says that the worker must (A) be free from control and direction from the hiring business, (B) must perform work outside the scope of the hiring entity’s usual business and (C) the worker must have an independent business of the same nature of work (demonstrated by taking out a business license or marketing services, etc.).

The biggest change is Part B, which was never included under previous law.

Dynamex is a same-day courier and delivery company that classified all its drivers as employees until 2004 when it reclassified them as independent contractors. Though the drivers could set their own schedules, they had to wear Dynamex uniforms and notify the company of their availability. The state Supreme Court ruled that the drivers should be employees.

The court ruling has put doctors in a bind who are now caught between this ruling and the state Business and Professions Code, which bars hospitals from directly employing most physicians. Many doctors serve as independent contractors at several hospitals – sometimes working a few shifts at safety net hospitals, which provide lower reimbursement rates, and other shifts at higher-end hospitals which pay more. Because they set their own schedules, they can have more time to spend with children and family if they choose.

The ruling has caused Neighborhood Music School, a 104-year-old educational organization in Los Angeles that serves 350 students mostly ages 5-21, to throw out its business model

“I think this was not meant to include physicians because the doctors who are independent contractors like being independent contractors,” said Dr. Aimee Moulin, immediate past president of the California Chapter of the American College of Emergency Room Physicians. “They don’t need the same labor protections that other employees do.”

Gail Blanchard-Saiger, vice president and counsel on labor and employment for the California Hospital Association, said the ruling potentially exposes hospitals and other employers to a huge liability in fines. It may also cause some hospitals to cut back on wellness classes provided by independent contractors such as yoga classes, CPR and birthing classes.

The ruling has caused Neighborhood Music School, a 104-year-old educational organization in Los Angeles that serves 350 students mostly ages 5-21, to throw out its business model that has worked for over a century. It has reclassified all its music teachers as part-time employees, in many cases over their objections.

“We have less than a $1 million budget,” said Connie St. John, executive director of the school. “If the (California Employment Development Department) came after us, we couldn’t keep our doors open.”

The musicians who work for the school typically also have private students and perform with other groups. “The teachers do not want to be classified as employees,” said St. John. “They do not want to check to take a day off or to take off to tour for six weeks.”

“As independent contractors, many of us our able to have more fulfilling, lucrative, secure jobs that aren’t possible in the news industry these days.” — Randy Dotinga

The EDD ordered the school to reclassify its workers as part-time three years ago but the school appealed the decision and won. The EDD appealed that decision but the school won again. “We were thinking we’re good now,” St. John said. “We won twice.” But with the Dynamex ruling, the school quickly realized it had to act fast. “We became a sitting duck.”

Randy Dotinga, former president of the American Society of Journalists and Authors and a freelance writer based in San Diego, said the ruling is already concerning to his group’s members. Some writers have already lost work because of the decision. While they support workers who want employee status, they also want flexibility for those who don’t.

“As independent contractors, many of us our able to have more fulfilling, lucrative, secure jobs that aren’t possible in the news industry these days,” he said. “I feel I make more money, am more secure than I could have been in the news industry. I’ve been doing this almost 20 years. This works for me, this allows me to have a successful writing career. I don’t want to lose my job.”

Hair stylists are also caught up in the changes. Many work as independent contractors for salons, which rent them a station. But Daniel Muller, a San Jose attorney who works with the Professional Association, said it shouldn’t be too hard for them to keep their independent status if they choose to. Salon owners should just be sure to only rent them space and not get involved with collecting money or booking appointments or putting up a web site that identifies stylists as part of their team. “The devil is in the details,” Muller said.

Caitlin Vega, legislative director at the California Labor Federation, said the Dynamex decision is needed to rein in businesses who have avoided responsibility for workers. When companies don’t adequately provide for them, many end up on public assistance, she said.

“Companies have made tons of profits off cheating workers,” she said. “Now there’s a clear test and workers will be able to enforce their rights.”

 

 


  • kim

    A lot of independent contractors are being taken advantage of and the reason you do not see more being said about it is because a lot of them are being forced to sign forced arbitration contracts! A warning for any independent contractor (or anyone) is companies are now piggy backing off of contracts you may have signed elsewhere!!! If you signed a contract for a payroll company than your “job” can also enforce that contract you signed with the payroll company. And 9 times out of 10 buried in their contract is forced arbitration. It really blows my mind this is legal still. These companies are basically running modern day slavery under the guise of independent contractors. Most of these contractors are employees but are forced into arbitration and never get the chance to stand up for their rights!

    • Calified

      That may be true in some industries but this law is going to effect many industries where people are happy with the way it is and these new laws are going to put many people out of business that cant afford to pay hourly wages, workmens comp, insurance, benifits ect. The state is not fighting for the rights of workers they want their tax money. They see industries where they are not getting what they want and this is a shot at our wallets.

  • Philip Macafee

    I find the article quite lopsided for a number of reasons. First, the description of the challenges that the Dynamex ruling present are not quite accurate.
    Many firms that wish to avoid reclassification tout the “flexibility” that their independent contractor arrangements provide their workers. Now certainly, we think of employees having regular, preset shifts, punching in with a time card and scheduling days off far in advance. Companies wanting to evade the reclassification use that familiar understanding as a fear tool to keep their workers from complaining about their workplace inequities to employers or regulatory agencies. But there is no labor code that requires fixed schedules, length of shift or when the work agreement is created. Employees can indeed negotiate pay, schedules, days of availability just as if they were working through a temp agency. Ms. Renner’s reporting promotes that myth and shows examples of workers worst fears: “Because they set their own schedules, they can have more time to spend with children and family if they choose.”

    Secondly, the article does not show specifically how the reclassification would threaten the existing relationship. For instance In her example of yoga instructors, what part of the employee relationship would make teaching a class impractical or impossible? So they are paid $100 for a class, taxes are taken out and the employer covers any worker injury like a stretched ligament. If the instructor’s actions would result in an attendee’s injury and a lawsuit came about, the employer would probably be named just as well whether the teacher was an employee or a contractor. We need to know how specifically this reclassification issue changes the workplace. Changing a worker from an independent contractor status to employee will increase costs by about 20% for social safety net payments like unemployment insurance and social security. In some cases the employer actually takes over payments that they contractor would have to make themselves.

    But the worst aspect of this article is the glaring falsehood that the Dynamex ruling introduces a new, never before used criteria. “The biggest change is Part B, which was never included under previous law.” This in fact is a very common test to see if the employer is trying to create a “virtual company” with no or few employees while doing the same work as their competitors and not contributing to taxes and social safety net programs. While Dynamix is the new California precedent case with three factors to judge, the state has previously relied on the Borello case with 8 factors. Here are the first 2:
    “1. Whether the person performing work is engaged in an occupation or business that is distinct from that of the company;

    2. Whether the work is part of the company’s regular business;”

    Not only did this test factor exist before Dynamex, it was the primary test used by courts in making rulings. Furthermore this aspect is present in many other state and federal tests throughout the country.

    No doubt,the Dynamex ruling is big and many companies will have to change they way they communicate with and control with their workers. It may mean that the HR department will function more like a temp agency. What we need now are ideas about how to keep the good parts of the old while providing fairness and social protections to a larger part of the state workforce. Unfortunately this lopsided article reads like a press release from the California Chamber of Commerce.

  • Oscar Gonzalez

    How would it be possible to rent a booth in a barbershop if we choose to stay as an independent contractor?

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