California Dynamex Decision and AB5: What Your Warehouse Needs to Know

Over the past nearly two years, the State of California has moved to severely limit the ability of businesses to employ independent contractors. In April 2018, the California Supreme Court, in Dynamex Operations West v. Superior Court, ruled that employers must pass an “ABC” test to determine whether or not independent contractors are truly to be classified as employees. To retain contractor classification, employers must now fulfill all of the following standards:

  1. the individual is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of work and in fact
  2. the individual performs work that is outside the usual course of the hiring entity’s business
  3. the individual is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed

This new standard greatly differs from the previous one established in Borello (1989), which primarily used only the “right to control” test (whether an “employer”  has control over the manner of work or not). In October 2019, the California Court of Appeal ruled that these new standards expressed in the Dynamex case can even be applied retroactively to any pending wage and hour cases. Additionally, Gov. Gavin Newsom has nosigned Assembly Bill 5 into law which codified the Dynamex standard and expanded the reach of the “ABC” test to address not only wage violations, but also other employer obligations, including expense reimbursement, social security tax, workers comp, and unemployment insurance. The law will take effect January 1, 2020.

IWLA is following developments closely as this law faces challenges from various industry groups. The California Trucking Association has already filed a federal suit challenging this law, as it would result in tens of thousands of owner-operator drivers losing their jobs.

If you have warehouse operations in California and hire independent contractors, you need to be aware of these developments. You may be faced with the prospect of having to reclassify your workers or potentially face lawsuits for lost wages and other benefits.

Please contact Mike Williams, IWLA California Government Affairs Consultant, for questions and more information at mwilliams@iwla.com.

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