The Dynamex Decision The End of the Independent Contractor Era? Paul Marron, Esq. July 24, 2018 CLDA Webinar 1
CONFIDENTIALITY • This presentation is only for members of CLDA and includes advice and discussion focused on the legal interests of the CLDA industry • It is to be used only by members of the CLDA community • Those who do not fit the above criterion and by intention or inadvertence receive a copy of this power point and/or audio recording are not authorized to review, use or disseminate it 2
Overview - 1 • Dynamex ushers in the ABC test • What is the ABC test? • Will it apply in my state? • Increase my company’s risk? • Litigation and Legislative Attacks on ABC 3
Overview # 2 • Goals of this Presentation: • Strengthen your company’s ability to beat back misclassification threat regardless of ABC or traditional common law test • Tell the objective truth – for those in states where Dynamex does or may apply, it is a nail in the coffin without major change • Identify ways your company can adapt and thereby prosper in this growing industry • Dynamex is not the end of the road for imaginative companies willing to a) invest in model change and b) do it • Questions 4
Common Law Test • Multi- factor analysis focused on “right -to- control.” • Prevalent across US FACTORS INCLUDE: • Worker engaged in a distinct occupation; • Work done under supervision; • Whether worker provides tools and place of work; • Length of time services are performed; • Method of payment; • Whether work is part of the regular business of the principal; • Work requires special skills; and 5 • Belief of the parties.
NEW CA “ABC” TEST Presumes all hired workers are employees unless hiring entity can prove that the worker: A. Is free from control and direction of the hiring entity; B. Performs work that is outside usual course of hiring entity’s business; and C. Engaged in an independently established trade, occupation or business doing the same type of work as performed for the hiring entity. MUST SATISFY ALL THREE 6
DOES DYNAMEX (ABC) APPLY TO MY COMPANY? • Yes: MA; NJ; CONN; ILL; NH; WA; MD; VT (Pay special attention!) (Some variation/lighter application in some of these states • No: All other states (but only “sort of”) • Do the “sort of” states need to pay attention to this presentation? (YES) • Other blue (Democratic) states follow CA or have similar statues; i.e.; NY (“Fair Play”); PA; OH; MI; CO; AZ; NM; etc. often follow CA • Prophylactic & the “good ole days” of the traditional test? • The traditional test is hardly a “silver bullet” for companies. Under traditional tests, companies routinely are sued, only win 50% of the time and get hammered by huge attorney fees, extortionate settlements and regulator hostility. • This is true even in deep red states, many of which have large metro areas with lefty judges, regulators and juries • Efforts to protect against ABC in states where it is not applicable will increase 7 company wins in “traditional test” states
IMPLICATIONS OF ABC • The harsh reality brought about by Dynamex is that the California Supreme Court has effectively issued a “sledge hammer” decision designed to: • Reclassify all California independent contractor drivers as employees • This analysis common amongst attorneys and sophisticated operators 8
Dynamex Part A = Right to Control = • Right to control > Exercise of control • Lack of control must exist in contract and in practice • Similar to traditional control test. If your business cannot pass this test, it will not satisfy Part A of the ABC test 9
COMPARE YOUR COMPANY TO THE FACTORS THAT LOST IN DYNAMEX • Independent contractor drivers since 2004, converted from employee • Drivers provide own vehicles and pay expenses (fuel, tolls, maintenance, insurance, taxes, workers comp, Nextel device). • Drivers set own schedules but must notify Dynamex of days they are available in advance. • Drivers assigned delivery list daily. Must notify "promptly" if they reject an offered delivery and are liable for any loss incurred as a result. Drivers can set route/sequence of deliveries but must complete all deliveries same-day and must comply if a customer sets the route. • Drivers wear Dynamex shirts/badges. Some required decals on vehicles. • Dynamex obtains its customers and sets rates, negotiates amount to be paid to drivers, and retains right to control number and nature of deliveries it offers. • Drivers can hire other drivers and can drive for other companies, but cannot divert deliveries to another provider. • Dynamex retains right to terminate without cause on 3 days' notice. 10
Part B: Distinct Business • The worker’s job is independent, separate, and distinct from the hiring entity’s business • Examples given by Dynamex Court: outside plumber or electrician hired by retail store is a distinct independent contractor • Distinct means routinely hired my multiple companies, not a single principal company • Distinct means not an integral part of principal company’s business or services 11
Part C: Indicia of Self-Employment • Incorporation, licensure, advertisements or routine offerings of service to the general public unrelated to hiring entity • Bitter but necessary pill: contract only with drivers who have formed a business entity and that, at the least, provide services for multiple companies. • Use contract and operational terms to protect your client base and customers 12
What does this all mean for the traditional independent contractor operations that do not change and adapt? 13
Rays of Hope? Practical Application in Other Jurisdictions Legislative Modifications of “B” Factor New Jersey, Connecticut, Illinois, New Vermont also Hampshire, Washington, Maryland, has a statutory Vermont, allow for “B” factor to be met exclusion of when the work “is performed outside of “taxi -cab drivers” from all the places of business of the definition of enterprise for which such service is “employee.” performed.” 14
FAAAA Preemption • Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) may offer some protections but outside of Massachusetts, not in the immediate future • First Circuit (Maine, Massachusetts, New Hampshire, Puerto Rico and Rhode Island) held that FAAAA preempts Part B for motor carriers, including many delivery businesses • Note: Still must satisfy Parts A and C • Limited to interstate commerce 15
Pending Litigation & Legislation • Western States Trucking Association is planning to challenge Dynamex under the FAAAA. Ninth Circuit could create a circuit split for the US Supreme Court to decide. • Denham Amendment, already passed US House of Representatives, would exempt carriers from complying with state laws that require employers to provide paid meal and rest breaks to employees. It also would preempt state rules on misclassification of truck drivers. • Must pass Senate before mid term elections? 16
General Trends Along Political lines Legislative modifications and litigation shifts are all 3-5 years down the line Anticipate expansion of ABC and “employee” definition similar to California in blue states and metropolitan areas with strong plaintiffs’ bars Companies must adapt now 17
SOLUTION-TECHNOLOGY Develop (or buy) a Dispatch System that allows and can prove: • Algorithmic dispatch • Minimize human dispatcher involvement • Deliveries posted electronically to drivers who have right to accept or reject electronically • Post large # deliveries on line afternoon before to establish “freedom of choice” • Allows for negotiation on pricing re hard to get accepted deliveries • 18 Develop contracted routes
SOLUTION – TECHNOLOGY - 2 • Develop and maintain a system that allows “prove it” in court • “I had to accept the delivery or they would block me from the system” • I never rejected deliveries because if I did, they would blackball me • It was always take it or leave it on the price • The money was so poor that I had to work 24/7 • They gave me lousy deliveries because I tried to assert my rights • They dictated my routes • A TECHNOLOGY SYSTEM THAT RETAINS THE INFORMATION FROM THE PRIOR SLIDE IN A WAY THAT CAN BE PRESENTED AS EVIDENCE IN COURT, DISCREDITS HOSTILE DRIVERS AND GOES MILES TO WIN A CASE • As the typical “he said vs. she said” of management & dispatchers testifying 19 anecdotally never will
SOLUTION – DRIVER INDEPENDENT BUSINESS • Do not contract with a driver that has not incorporated/LLC, etc. and obtained business license. Cross this “Rubicon” • Focus on drivers that hire other drivers through their entity • Establish your own ABC: • A = Your Company; • B = Delivery Entity (your traditional driver) • C= Drivers B has hired • Your company is A to B only; stays out of any relationship with C 20
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