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ASK THE CALIFORNIA EMPLOYMENT AND PAYROLL TAX ATTORNEY – DYNAMICS CASE IN A NUTSHELL

By Robert S. Schriebman

2018

Introduction

Earlier this year I wrote a four-part series of articles discussing the 2018 California Supreme Court Dynamex case. Since then I have had several requests to synthesize these articles into a brief overall synopsis. This has not been an easy task when you consider that the Decision involved 82 pages of a combination of history and legal dictum. For what it’s worth, here is my summary offering for your consideration.

At the end of April 2018 the California Supreme Court published its decision in Dynamex Operations West, Inc. v The Superior Court of Los Angeles County. This case has changed the playing field and given new definitions to "employer," "employee," and "employed." The new test is known as the "Suffer or Permit to Work" Standard. This new standard has three parts, any one of which, if met, will change the relationship of independent contractor to employer-employee. It is not a new test that the Supreme Court created on its own. Rather it has been around since 1916, but has been buried in a wage order issued by the California Industrial Welfare Commission, but never applied or interpreted by the courts until 2010 when it was discussed in another California Supreme Court Case known as Martinez v Combs 49 Cal.4th 35. Wage Order No. 14, Cal. Code /regs., tit. 8, §11140, subd. 2(C).

The Martinez case never directly involved worker status issues. It did address the definitions of "employ" and "employer" as used in California wage orders issued by the Industrial Welfare Commission (IWC). The Court in Dynamex held that these definitions went to the heart of the worker-status issue.

Martinez involved strawberry harvesters who were not paid required minimum wage or overtime. The growers (owners) argued that these workers were independent contractors. The harvesters tried to use the standard of "suffer or permit to work" against vendors and suppliers as joint employers with the growers. The workers lost. The Court was not willing to attribute an employer-employee relationship to the end purchasers of the produce. The case involved legislation enacted in 1913 to create the IWC as well as a 1916 wage order defining "employee" and "employer." The wage order was designed to protect women and children in the labor force by creating the "suffer or permit to work" test. "To employ" means suffer or permit to work and an "employer" includes a person or entity who "employs or exercises control over the wages, hours, or working conditions of any person." (Martinez, supra, 49 Cal. 4th at p.59). Things became a bit confusing when the Martinez court concluded that there were two standards - the traditional common law world view and the test under the 1916 "suffer or permit" wage order.

"To employ, under the IWC’s definition, has three alternative definitions. It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship." (Martinez, supra, 49 Cal.4th at p.64)

In Dynamex the Supreme Court focused upon narrowing down and defining the "suffer or permit to work" standard. The goal was to adopt a simpler, more structured standard for distinguishing between employees and independent contractors. The Court adopted the "ABC standard" used in other states.

The ABC standard has 3 primary factors:

  • That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • That the worker performs work that is outside the usual course of the hiring entity’s business;
  • That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. (Dynamex page 64)

Conclusion

It seems that everyone in my industry has an opinion on the nature and breadth of Dynamex. Most of what I have read paints a bleak future for employers who try to argue that workers should be treated as independent contractors. Many of my fellow practitioners take the position that attempting to win the day before the EDD or the CUIAB is going to be a waste of time and expense. I don’t see it that way. While the Dynamex case is new, I believe that the law in this area has been stable since Borello and that everything old is new again. I believe that there are still the standard arguments that have evolved over the years, and those arguments can well be integrated and become part of the ABC test set forth in both Martinez and Dynamex. Pessimism is no more than over-reacting.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure," both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, "IRS Tax Collection Procedures – A Manual for Practitioners" published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, "IRS Tax Collection Procedures – A Manual for Practitioners" published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure," both published by Commerce Clearing House.

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