Dynamex Case

California Broadens Definition of “Employee”
Accounting & Other Professional Firms Affected

Whether you have or not, it will benefit you to read on…

You may or may not know that the Dynamex Operations West Inc. v. Superior Court decision will affect a large portion of your clients.

Over the past twenty years, labor law in California has become increasingly business unfriendly. It is nothing new that many businesses have been paying workers as independent contractors, as opposed to salaried employees. However, the California Supreme Court’s March 2018 decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles reexamined and ultimately rejected the existing  standard for determining worker classification as contractor or employee. (the old Borello test).

This new standard provides requirements for wages, hours and other conditions in almost all industries. It presumes workers to be employees and places the burden of showing otherwise on the employers. Employees generally have legally regulated working conditions, hours, and wages. Obviously, the downside is that a worker classified as an employee causes the employer to be responsible for paying payroll taxes, unemployment insurance taxes, social security taxes, and worker’s compensation insurance. Independent contractors don’t receive any of these benefits. The difference to a business’s bottom line can be significant, and misclassifications will result in heavy penalties.

The Court introduced a new “ABC” test to determine whether someone is an employee.

Under this new “ABC” test, a worker is considered to be an independent contractor only if all three of the following factors are present:

• (A)   The worker must be free from the control and direction of the payor in connection with the performance of the work, both under the contract and in fact;
• (B)   The worker must perform work that is outside the usual course of the Payor’s business; and
• (C)   The worker must be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed by the worker for the payor.

For example, if accounting is your “usual course of business”, every outside CPA or EA you work with is now considered an employee!

As we mentioned before… it gets worse.

Stay tuned for our upcoming TRI Minute on this subject.

If you would like to review the Dynamex Case Summary yourself, please click the button below.

Currently, this decision only affects California, but it may be coming to your state soon.

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