Why California’s Dynamex Decision Was a Win For Workers and Unions
Worker misclassification is a hot-button issue.
The way workers are classified carries financial and legal responsibilities as well as consequences for both companies and laborers. At a time when the economy is increasingly shifting toward freelance, gig and contract work, the issue has become increasingly important.
In a report for the Economic Policy Institute (EPI), Françoise J. Carré, Ph.D, research director for the Center for Social Policy at McCormack Graduate School at the University of Massachusetts in Boston, notes that misclassification seems to be on the rise, significantly so in some industrial sectors. Carré reports that 10–20 percent of employers at a state level misclassify at least one worker as an independent contractor.
The workers are the ones hurt by this practice. David Weil, former administrator of the Wage and Hour Division of the U.S. Department of Labor under President Obama, notes that when workers are misclassified as independent contractors, they
- aren’t covered by basic labor standards such as minimum wage, overtime, and the right to be compensated for the hours worked;
- don’t qualify for social safety nets such as workers compensation and unemployment insurance;
- are outside the protection of the Occupational Safety and Health Act;
- cannot be represented by a labor organization under the National Labor Relations Act;
- and must pay all federal and state payroll taxes as both an employer and an employee.
Over the last few years, workers have been fighting back against misclassification by employers through legal action. That action has had largely positive outcomes for workers, says The Department for Professional Employees, AFL-CIO (DPE). Some of the recent workers wins in misclassification cases included
- construction workers in Utah and Arizona in 2015;
- cable installers in Kentucky in 2013;
- and Uber drivers in California and Massachusetts in 2016.
These victories have helped to establish correct classification and secure retroactive compensation for overtime and other lost benefits. The most recent victory for workers is the April 2018 ruling in the California Dynamex case.
Drivers Win Misclassification Case Against Dynamex
In a landmark ruling in the misclassification battle, the California Supreme Court ruled in April 2018 that the burden of classifying workers as independent contractors falls to employers. Workers must be presumed to be employees unless they’re proven to be contractors. The Dynamex Operations West, Inc. v. Superior Court of Los Angeles ruling set a new, more rigid ABC-test standard for classifying workers as independent contractors.
A Look at the Decades-Long Case
Dynamex (now TFI International after a 2010 purchase) is a courier and delivery service company that has operations in California. In 2004, Dynamex began reclassifying its drivers as independent contractors as opposed to employees. For those drivers, reclassification meant they would be responsible for providing their own vehicles, for paying their own taxes and buying their own insurance. The workers would also no longer qualify for company benefits.
In 2005, several drivers filed a lawsuit against the company claiming that the new classification was illegal under California wage orders. Their argument was that they were performing exactly the same tasks as they did when they were classified as employees, so they should be classified as such. The lawsuit moved forward as a class-action suit against the company.
Thus began a legal battle that spanned two decades. The case went back and forth in appeals courts until the California Supreme Court ultimately ruled in favor of the plaintiffs in April 2018.
The Ruling Establishes the ABC Test
In its ruling, the court adopted the ABC test of worker classification, which essentially overturned an older standard, the Borello test, which outlined 11 subjective standards for review when classifying a worker.
The new test creates a much simpler standard. To classify a worker as a contractor, employers must prove that the worker meets all three requirements:
- The worker is free from control and direction of the hiring company.
- The worker performs work outside the usual course of the hiring company’s business.
- The worker is customarily engaged in an independent trade of the same nature as the worked performed for the hiring company.
The Dynamex ruling presumes that workers are classified as employees until proven otherwise. The three-part ABC standard protects workers more than the Borello test did by being “simpler and easier to comply with and enforce,” asserts Caitlin Vega, legislative advocate at the California Labor Federation.
The ruling and the test are seen as victories for workers because they inhibit an employer’s ability to misclassify their employees — a common strategy for reducing wages and employer costs. Harold Meyerson, editor at large of The American Prospect, calls misclassification a pervasive scam that has been used to transform industries.
The Dynamex decision is positioned to protect workers from such practices. “Dynamex is a good first step to stop employers who abuse the system to cut costs, and it will ensure that more workers are correctly classified as employees so that they can enjoy more of the protections that California laws have to offer,” assert employment attorneys Amber Bissell, Katie Bain, Katie Debski and Laura Mazza.
Still, the Dynamex ruling isn’t black-and-white. It has also created gray areas that have lawmakers strategically advocating for more or fewer worker protections, depending on which side they are on.
The Reverberations of the Dynamex Decision
Now, the question becomes whether the Dynamex standard should also apply retroactively to cases, and whether it should apply to all labor code claims.
Both issues were tested by the Garcia v. Border Transportation Group LLC case, in which a worker claimed misclassification under both wage and labor codes. The trial court and the appeals court found that the Dynamex standard only applies to wage code claims.
Another case, Vazquez v. Jan-Pro Franchising Int’l, Inc., confirmed the court’s intent to allow the ABC standard to apply retroactively to cases that were filed prior to Dynamex. California’s Ninth Circuit ruled that its application of judicial decisions retroactively is a precedent already set in California law.
It’s too early to say, but this may be good news for workers. Now, the California court has opened the door for workers to apply the new standard of misclassification to any old wage code claims they may bring forward.
Competing Post-Dynamex Bills Being Debated
There are two opposing bills that have been presented for debate after the Dynamex decision — one that could codify the Dynamex decision and another that would restore the Borello standard.
Marissa Marandola, a former fellow at the Department of Labor, notes that labor took the offensive in the post-Dynamex legislative battle by quickly moving to pass legislation that broadened the scale of the Dynamex ruling.
AB-5, sponsored by the California Labor Federation and introduced by Assembly Member Lorena Gonzalez Fletcher, would establish the ABC test as the method for determining whether a worker is misclassified as an independent contractor for all labor code claims. Gonzalez Fletcher says the push to have the decision made law for all claims “offers a quicker resolution than fighting in court for years over its implications for issues like workers’ compensation and unemployment insurance.”
Opponents of the Dynamex ruling claim it is an overreach that could have serious negative impacts on industries that heavily utilize independent contractors.
AB-71 is the opposing piece of legislation to AB-5, introduced by Assembly Member Melissa Melendez. It seeks to completely overturn Dynamex and return to the Borello standard for all misclassification claims.
Both sides of the issue are closely watching the progress of each of these bills through the state legislature.
That includes union leaders.
The Ruling’s Impact on Unions
The Dynamex ruling was a win not only for workers, but also for unions. Jolene Kramer, attorney at labor and employment law firm Weinberg, Roger and Rosenfeld, notes that because some workers will be reclassified as employees, they will have the ability to join unions and collectively bargain.
Unions will have the opportunity to recruit these workers and build a stronger member base. More members means more money, which means more resources to represent members and fight for workers’ rights. It’s a crucial issue to follow and for California locals to support.
UnionTrack ENGAGE can help union leaders with these recruiting efforts by facilitating communication about union benefits and more actively engaging workers with union activities.
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