SLIDE 1
Presented by Sean Brew and Cameron Roberts Roberts & Kehagiaras LLP September 13, 2018
SLIDE 2 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.
SLIDE 3
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.
SLIDE 4 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
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SLIDE 6 (a) whether the one performing services is engaged in a distinct
(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;
SLIDE 7 (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
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“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”
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Labor Leaders IC Drivers Businesses Government
SLIDE 10 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
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Own their business Can work for others Can expand their business Set their own schedule Better pay
SLIDE 12 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
SLIDE 13 In the Dynamex case, the California Division
- f Labor and Enforcement Standards
submitted a brief saying that misclassification costs the state $7 billion annually.
Taxes, disability payments, etc.
SLIDE 14 A person who
provides services to another is presumed to be an employee.
Presumption
shifts the burden
SLIDE 15 Under the ABC test, a worker is properly considered an
independent contractor only nly if the compa
es all l three ee:
- A---
- --The worker is free from the hirer’s control and
directi ection n in con
ction with th the performa
e of f th the e wor
k, under nder the e con
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
e function nctions s or expertise ertise.
SLIDE 16 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
SLIDE 17 Test st B---
he worker rker performs forms wor
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?)
SLIDE 18 C---
e worker rker is cust stom
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
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.
SLIDE 19 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
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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.
SLIDE 21 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
SLIDE 22 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
i.e., greatly impacts price, routes, service and thus preempted
by FAAAA
SLIDE 23
- 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.
SLIDE 24 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!
SLIDE 25 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
SLIDE 26 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
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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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