When delivery courier service Dynamex decided to convert its drivers in California to independent contractors, one employee chose to challenge the legality of this action. With a court ruling condemning the activities of Dynamex, the viability of businesses in a gig economy in the Golden State has come into question.
Court Findings
The Court’s decision was based on the premise that when businesses misclassify employees, it is a dangerous practice that harms workers, competition, and the general public. In fact, workers must be considered employees when they meet certain basic criteria:
- The work they do is essential to the core performance of the business;
- The business provides direction for the worker’s activity;
- The worker does not generally perform the work outside of the work done for the business.
Why Does it Matter?
Many businesses would prefer to classify workers as independent contractors for simple economic reasons. It gets employers off the hook for expenses including:
- Social Security taxes
- Unemployment insurance;
- Payroll taxes;
- Workers’ compensation costs;
- State taxes.
Beyond the economic considerations, employers can also wash their hands of any state or federal regulations associated with the workers, and cannot be cited for wage and hour violations or for concerns related to working conditions such as rest breaks and so forth. Certainly, it is advantageous for the employer to classify workers as independent contractors, then, while it highly disadvantages to everyone else.
How Will the Ruling Affect Other California Businesses?
Is the ruling in the Dynamex case a precedent-setting situation that will distress the way other California businesses operate? After all, plenty of businesses hire people to perform duties essential to the core of the business. Think caregivers, salon workers, and ride-share drivers, for starters.
Could these types of businesses afford to provide services to the public if they had to invest an additional 25-40% in workers? Quite a few have already been forced to close their doors, unable to compete. One expert on the topic predicts that in order for the gig economy to continue to flourish, a couple of things need to happen:
- Companies will need to automate more;
- Prices for goods and services will necessarily escalate.
As a result, smaller companies will have a much harder time breaking into and staying afloat in the market.
Another Option: Dependent Contractors
Andrew Hagiu, a visiting associate professor at MIT, suggests another way to deal with what he calls the unsustainability of the gig economy: Create a new designation of dependent contractors. Such a classification might provide for a menu of benefits for employers to provide for workers, without requiring all of the costly goodies to which regular employees are entitled. Obviously, such an idea would require legislation to become a reality.
Challenging Employment Status
If you question your employment classification here in California, the experienced legal team at HKM is prepared to go the distance on your behalf. Contact us in Los Angeles for a confidential consultation today.
