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Ask The California Employment Tax And Payroll Tax Attorney ‐ Late Night Thoughts On The La Times Article Discussing The Dynamex Case ‐ Part 1

By Robert S. Schriebman
2019

Introduction

On February 24, 2019, the Los Angeles Times published an article discussing the impact of the April 2018 California Supreme Court Dynamex Decision. Before discussing the article and giving my personal thoughts and recommendations, let’s review the Dynamex Case in a nutshell.

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:

  • (a) 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;
  • (b) That the worker performs work that is outside the usual course of the hiring entity’s business;
  • (c) 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)

The Los Angeles Times Article of February 24, 2019

According to the LA Times, the Supreme Court set a strict new test. Anyone is deemed to be an employee if his/her job is “central to a company’s core business or if the bosses direct the way the work is done.” Exceptions are made for historically recognized occupations such as electrical, plumbing, law, accounting, and the practice of medicine.

The Times article interviewed several individuals who work as independent contractors and employees. Independent contractors enjoy larger paychecks and freedom from withholding and the payment of withholding taxes. It’s not all wonderful. There is little if any job security and the engagements may be short-termed. The Times report that independent contractors constitute about 8.5% of California’s workforce. Some wage earners earn extra money by hiring themselves as independent contractors to supplement their income. Nothing was mentioned about California underground economy.

Employees, on the other hand, feel exploited. There is little or no job security in today’s business environment. The Times goes on to report that independent contractor lawsuits against Uber, Lyft, Amazon and GrubHub are on the rise; there are literally thousands of lawsuits. Truck drivers operating out of the Port of Los Angeles filed multiple lawsuits since 2011. These lawsuits were settled for $50 million.

As an aside… this is one of the reasons why I have written many articles favoring EDD settlements. These settlements do not bestow any retroactive rights or benefits to would-be employees. The settlement does not empower, in its own right, a lawsuit for lost benefits.

The Current Dynamics of Dynamex

There is much activity in the California Legislature to codify the Dynamex decision and make it the law of the land. It seems that every representative has his/her own take on the case, as well as, his/her own agenda. Of course, pressure groups and large businesses, such as Google, Amazon, and Facebook do not want Dynamex enacted. The LA Times interviewed a representative of Uber who defended the independent contractor treatment of drivers as a commercial matchmaker connecting riders to drivers. Some day some smart judge is going to see through this smokescreen and hold Uber drivers and other gig economy workers as employees and not independent contractors. In my opinion Uber and Lyft are skating on very thin ice.

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.

It’s All About Money

In my opinion Dynamex, and the Legislatures’ preoccupation with the case, is really all about money – countless billions of dollars in the foreseeable future. These dollars have to go somewhere. The money saved in payroll taxes, both state and federal, will go into public and private business. It means dollars for capital improvements and dollars for dividends. If those same dollars go into the US and California treasuries there is no telling how the monies will be used; perhaps with great public benefits. Remember all of the lottery dollars that were suppose to go into our public schools and universities?? Either way you look at the coin, there is a lot of money at stake here.

The LA Times Did Not Do a Complete Job

The LA Times article interviewed individuals who were both independent contractors as well as employees. The article also interviewed strippers and employers in the entertainment industry. The article was primarily a bunch of “war stories.” The Times could have done a better job, by interviewing people and experts who are in the trenches and fighting the day-to-day battle between government and the private sector. Representatives of the EDD should have been interviewed because they see some real abuse from employers who keep workers at essentially poverty-level incomes. The Times could have interviewed attorneys and accountants who daily deal with EDD and IRS worker status audits and employment law issues. In this respect, the Times article was a gloss-over disappointment. I submit that the reporter, Margot Roosevelt did not do her homework and did not fully explore one of the most important issues in today’s economy.

In Part 2 we will discuss the Dynamex decision in light of current thinking for both the private and public sectors.

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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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