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Ask The California Employment Tax And Payroll Tax Attorney ‐ Late Night Thoughts On The L.A. Times Article Discussing The Dynamex Case ‐ Part 2

By Robert S. Schriebman



This is Part 2 of a 2 part series discussing the February 24, 2019 article that appeared in the Los Angeles Times. The article was written by Margoot Roosevelt. While this reporter set forth a series of work place scenarios, she failed to provide an objective and thorough treatment of the subject because she apparently did not bother to concern herself with opinions from legal experts. The Dynamex case is about tax law. Ms. Roosevelt presented no legal or judicial analysis. War stories are fine but they do not get to the heart of the matter.

Let’s review briefly the Dynamex decision. Thereafter I will give you my own personal points of view. Before doing so however, allow me to refresh your memory on what Dynamex is all about.

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 (IWC).

“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:

  1. 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;
  2. That the worker performs work that is outside the usual course of the hiring entity’s business;
  3. 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)

Bob’s Late Night Thoughts

Money Is the Bottom Line

As a society we are drifting away from our past emphasis on a strong middle class. We are constantly informed, in every media, that the rich are getting richer, and the poor are getting poorer. Treating workers as independent contractors has little to do with independence and more to do with accumulating wealth. The younger generations have picked this up and are demanding more “freebies” and governmental programs with socialism aspects. Employers are constantly under pressure to be competitive. I cannot count the times that clients have told me that they must treat workers as independent contractors in order to stay in business because this is what their competition is doing. It’s economic survival.

No one can count the dollars involved in this issue for the future – countless billions. And the State of California wants its piece of the action. California has two methods of gathering these funds – the Legislature and the EDD. The audit workforce of the EDD has been greatly increased. There are more worker status audits going on today than I can recall. Most EDD audits find something wrong with the way the employer does business, and this translates into more assessments. EDD audits, no matter how they are eventually resolved, help fill the State’s Treasury.

Even with all the EDD’s activity, I believe that cash is still king and the underground economy will continue to flourish. There is an attitude that the California government has more than enough money to meets its needs and must clean up its own house to become more efficient.

The Gig Economy

The gig economy is here to stay and is on the rise. The L.A. Times article interviewed a spokesman from Uber. When confronted with the question of the status of Uber drivers as employees, the spokesman strongly responded that the drivers are simply individuals looking for a short-term engagement and that Uber connects riders to drivers as an app-based business, much in the same way that an agency matches services to needs. Perhaps the spokesman was correct. We are seeing more people taking on short-term assignments without establishing a long-term relationship. This is known as a ‘gig;” much the same way as a band is hired to play at a life-cycle event.

Gig workers get paid but get no employee benefits; they do not get Social Security or Unemployment Insurance benefits. There is no worker’s compensation. This might be great and fun when you are young. But what do you have in the autumn of your years?

Enter the Gigee

A friend suggested that legislation be introduced, and regulations issued that would provide a hybrid gig worker. Let’s call the worker a “gigee.” This worker would be allowed to contribute to a fund that would provide worker benefits including a hybrid Social Security system while allowing that worker freedom in the marketplace and not imposing upon the employer additional costs. Of course, we can expect economists and politicians to protest that these additional benefits would be inflationary. I have no opinion.

Some Thoughts on Legislation

Governor Gavin Newsome is all in favor of making the Dynamex decision the law of the land. Rep. Lorena Gonzalez (D-San Diego) introduced Assembly Bill 5 to codify the Supreme Court decision. She feels that if employers do not pay their fair share, the cost falls on the taxpayers. People without employment benefits, such as unemployment insurance, often rely on food stamps or welfare. While this may be true, and I applaud Ms. Gonzalez’s concern for her constituency, I believe the real issue has little to do with the public benefit and more to do with money. Your money!

More conservative members of the Legislature want to put a stay-up on Dynamex to give the issue more analysis. I believe that it is less of an issue of timing and more of an issue of what goes on in the real world. It has been suggested that “safe harbor” legislation be introduced and regulations be issued outlining what has historically been reality in the marketplace. We can’t just say that traditional occupations, such as a plumber or an electrician, be acknowledged as independent contractors. Most industries have sub-occupations that are also historically recognized as being independent contractors. This is especially true in the entertainment industry.

Here are a few safe harbor suggestions:

  • If the employer has a favorable ruling on worker status from either the IRS or EDD, the worker status will remain in effect. The EDD must honor IRS rulings.
  • If the EDD or IRS has issued a no change audit within the past six years, the current worker status may continue. The EDD must recognize IRS determinations.
  • If the employer was audited by the IRS or FTB within the past six years, and there has been no change in worker status, the current worker status may continue.
  • If the relationship to the worker or business model has continued for the past five years, there will be no change in worker status.

What About Freedom to Contract?

The State of California is not your parent. Is it the job of the Legislature to protect each and every worker against themselves? Child labor laws, of course, have a valuable social purpose. Children need protection. But should the State of California take on the role of protecting adults from making their own bad decisions. For example, the L.A. Times article discussed the plight of gig workers who discovered to their chagrin that they are not making money driving people all over Southern California. To the Uber driver who complains that after adding up the costs of vehicle ownership and operation he/she is not making a profit. Is that Uber’s fault? Is legislation necessary to guarantee driver a nice profit? I don’t think so. If you are not making money at your occupation, and you continue in it, whose fault is it? If a band lost money after playing a wedding, do the members have the right to demand more compensation after the fact?

I’m Not a Constitutional Lawyer but…

Does the State of California have a right to pass laws interfering with the historic basic right of legal contracts? Did you know that in the U.S. Constitution there is a provision that prohibits a State from interfering with the rights of contracts? Article I Section 10, Clause 1 states, “No State shall …make any law impairing the obligation of contracts.” Of course the contract has to be legal to begin with. I must admit that reading this clause of the U.S. Constitution has given me pause. I hope that when life cuts me some slack, I will be able to look into this more closely and report back to you.


The goal of the Dynamex case was to simplify and clarify the definition of an employee. But life and economics are not simple, and business relationships are not always clear. We do business today because we have evolved from a barter society. We also live in an experimental society. That is to say, if someone comes up with what appears to be a better and more efficient way of doing things, we try it out. This is what the gig economy is all about. Perhaps a long time ago, someone found a way of making more money by treating workers differently. Now the State of California wants a piece of the action. Soon the Federal Government will figure out that the US Treasury will grow wealthy by demanding more in the way of increased payroll taxes. Dynamex may not have clarified worker status and may have become the genesis of future new ways of employers getting richer by retaining monies previously earmarked for payroll taxes. Clarification? Simplicity? Who knows?


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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