Presented by Sean Brew and Cameron Roberts Roberts & Kehagiaras LLP September 13, 2018
On April 30, 2018 the California Supreme Court issued a unanimous ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles that made it much harder for companies to classify truckers as independent contractors. Developed an “A -B- C” test, listing three facts employer must establish to prove independent contractor relationship Dynamex built upon the earlier Court-established test in the Borello case and law from other jurisdictions.
Pa Part t A: Freedom from control over how the work is performed. Pa Part t B: B: Worker performs work that is different from the hiring company's usual work. Pa Part t C: Worker independently established, maintains and promotes their own business.
Dynamex delivery service Drivers reclassified in 2004 as IC ◦ Own vehicles, on-demand, no guarantee, etc. ◦ Pay all their own expenses, choose their own routes ◦ Must wear Dynamex shirts, logos, etc ◦ Dynamex sets rates ➢ Plaintiff brings class action in 2005 -alleges misclassified as IC and failure to follow Wage Order No. 9
(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, whether the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
(e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; (h) whether or not the parties believe they are creating the relationship of employer-employee. (i) Right to discharge at will without cause
“Generally, … the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” Borello i.e,: room for argument---Dynamex wanted to apply Borello factors, not the other two definitions (Tests) of “employ” contained in the Wage Order 9 —” exercising control ” or “ suffering or permitting to work ”
Labor Leaders IC Drivers Businesses Government
no minimum wage or overtime pay no right to meal and rest breaks usually must purchase and maintain a vehicle pay for transportation expenses, and purchase their own tools. no access to unemployment when the job ends no workers compensation if injured on the job no right to organize to improve conditions. Source: California Labor Federation
Own their business Can work for others Can expand their business Set their own schedule Better pay
IC Model allows Flexibility to meet changing demand ◦ Both amount and type of work Lower operating costs ◦ No need to Purchase trucks ◦ No need to administer Payroll, etc. ◦ End result — more competitive, greater profit
In the Dynamex case, the California Division of Labor and Enforcement Standards submitted a brief saying that misclassification costs the state $7 billion annually. Taxes, disability payments, etc.
A person who provides services to another is presumed to be an employee. Presumption shifts the burden of proof.
Under the ABC test, a worker is properly considered an independent contractor only nly if the compa ompany proves es all l three ee: ◦ A--- --- The worker is free from the hirer’s control and directi ection n in con onnectio ction with th the performa ormance e of f th the e wor ork, k, under nder the e con ontrac ract and d in fact. The court observed that IC generally operates autonomously, whereas employees’ activities are supervised. For example, a company is less likely to satisfy this factor if it provides detail ailed ed instruction structions s to a worker, supervises the worker’s schedul hedule e or the development of work product, or provides trainin ining in areas that represent the worker’s cor ore e function nctions s or expertise ertise.
Dynamex Court explained that Test A closely mirrors the multi- factor test set forth in Borello Examples: children’s wear company that designed all the clothing and provided patterns and materials for work-at-home knitters and sewers — these are employees-- even though they worked from home on their own machines at their own pace and on the days and at the times of their choosing. (side note — the gig economy) By contrast, a construction company established that a worker who specialized in restoration work was sufficiently free of the company’s control where the worker set his own schedule, worked without supervision, purchased all materials, used his own business credit card, etc
Test st B--- ---The he worker rker performs forms wor ork k that at is out utside side the e usual sual course of the hiring entity’s business. Independent contractors generally have highly specialized skills that fall outside the hiring entity’s core business, whereas employees provide services that are “within the usual course of the hiring entity’s business.” Two contrasting examples: a retail store hires a plumber vs. a clothing manufacturer hires a seamstress or a bakery hires a cake decorator workers wo are “closely connected to the hiring entity’s usual business operation” are viewed as employees (sound familiar?)
C--- ---The e worker rker is cust stom omari arily ly engag gaged in an indepen dependen dentl tly establi ablished shed trade, e, occ ccupat patio ion, n, or busine siness s of the e same me nature ture as the wor ork k being ing performed. formed. Someone who has independently decided to go into business for him/herself. Other indications: business incorporation, licensure or advertisements, working for others this factor cannot be satisfied solely by the company’s allowing the worker to provide services to other customers; the worker must ust actua tuall lly be engag gaged in an independent established trade.
No more balancing 10+ factors alone Three hits or you’re out ◦ Toughest one for carriers is “B” -- outs utside ide the e usual ual course of the hiring entity’s business
Liability to driver for past wages, overtime, benefits, employment tax or unemployment insurance tax, etc – class actions Substantial fines or penalties if prosecuted Liability to federal or state tax authorities for income and Social Security taxes that would have been withheld from the worker’s paychecks had the worker been properly classified.
The Preemption Argument for the Trucking Industry Federal Aviation Administration Authorization Act (FAAAA) — prohibits laws that impacts “price, route or service” of motor carrier FAAAA: Congress saw states were hindering interstate carriers’ ability to conduct a standard way of doing business and by creating a patchwork of significant inefficiencies. FAAAA controls if “significant” impact on price, route or service”— law is preempted
Challenges Dynamex ruling in Federal Court on behalf of its members ( 1,000 member companies and another 5,000 affiliated member motor carriers engage in multiple modes of trucking operations from construction-related to general freight operations.) Main point: Dynamex ruling will increase prices, creates confusion, hurts small business, disrupts on-going operations, etc. i.e., greatly impacts price, routes, service and thus preempted by FAAAA
◦ Dilts v. Penske Logistics, LLC , 769 F.3d 637 (9th Cir. Cal. 2014): The panel held that California's meal and rest break laws as applied to the motor carrier defendants were not "related to" defendants' prices, routes, or services, and therefore they were not preempted by the Federal Aviation Administration Authorization Act of 1994.
Mass. Delivery Ass'n v. Coakley , 769 F.3d 11 (1st Cir. Mass. 2014) holds that Mass.’s three-point test to differentiate employees from independent contractors is pree eempt mpted ed. Mass. Law – Prong “b” ◦ (2) the service is performed outside the usual course of the business of the employer; and, = FAIL!
Convert all drivers to employees? With bonus for IC/OO? Protective contracts (for all employees): ◦ Mandatory arbitration ◦ Class action waiver Still exposed to: Judgment Prosecution Audit
Property Broker Model ◦ FMCSA license ◦ MAP-21emphasis on distinct authorities ◦ Tracks preemption & Congressional intent ◦ Factual Separation Limitations ◦ UIIA does not allow brokers to participate ◦ Access to POLA & POLB
Sean an Bre rew Cam ameron eron Roberts berts Roberts berts & Ke Kehagiar agiaras as LL LLP 310 310-642 642-9800 9800 www ww.tradea .tradeandcargo. ndcargo.com com
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