State Supreme Court Is Into Your Wallet Again

I Have To Keep Believing That The Weather In California Is Fantastic

There sure are a lot of reasons to not like my adopted state. Now, the State Supreme Court has made a ruling that could be costly for any company like mine that pays anyone as an Independent Contractor.

Decision: Dynamex Operations West, Inc. v. Superior Court

Date: April 30, 2018.

One Statement Says It All:

“The Court held that it is the burden of the hiring entity to establish that a worker is an independent contractor who was not intended to be included within the applicable wage order’s coverage”.

And This One:

“To meet this burden, the hiring entity must establish EACH of the following three factors, commonly known as the “ABC test”.

    A. That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the      contract for the performance of the work and in fact; AND

    B. THAT THE WORKER PERFORMS WORK THAT IS OUTSIDE THE USUAL COURSE OF THE HIRING ENTITY’S BUSINESS; AND

    C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

And: The court held that there is a presumption that the individuals are employees and that the entity classifying an individual as an independent contractor bears the burden of establishing that such a classification is proper under the “ABC test” used in some other states.

Time For All Companies That Pay Independent Contractors

And all people who are paid as IC’s to do a little research yesterday. I am talking to you Real Estate Companies, Property Management Firms and so forth. Should include Education Companies.

This is a State Supreme Court decision so I believe that CAR will be sending out legal statements soon. I believe their heavy hitters, they are all in Sacramento this week, so I hope we hear something soon.

Love the term “in fact”. That means you can have a contract with someone agreeing that he/she is an IC, but that does make them one in the eyes of the State.

Why Could This Be A Problem For A Company?

Social Security and Employment Tax and Worker’s Compensation Insurance.

Is a licensee selling real estate, “outside the usual course of the hiring entity’s business”? Now, that is the question.

When does somebody have to change? I sure do not have any idea.

This regulation should be called, “The full employment act for CA Employment Attorneys and Insurance Agents.”

See you in court.

6 Responses to State Supreme Court Is Into Your Wallet Again

  1. Mr. Everyman May 8, 2018 at 10:28 am #

    One more reason California is rapidly losing the best and brightest. The out migration is enormous. Check with any major moving company to verify who’s arriving, who’s leaving. A sad ending to a once very beautiful place to live. Now a third world refugee/sanctuary haven for the (others). Radical left political elites know what is best for you..

    • Duane Gomer May 8, 2018 at 2:48 pm #

      I am still a fan of the state, and our economy just passed UK. So many problems, don’t even know where to start.

  2. Jonathan Hubbell May 8, 2018 at 1:19 pm #

    REALEGAL®
    May 2018

    Dynamex Operations West, Inc. v. Superior Court, Charles Lee, et al. Real Parties in Interest
    During the last five years, the challenges to the real estate salesperson independent contractor status have increased. In a case unrelated to real estate, the California Supreme Court has issued a landmark ruling changing the common law factors test for employees for over 28 years to a new “ABC” test. This test is in conflict with California real estate license law. However, this potential conflict (under the factors test) was anticipated years ago and the legislature specifically stated in Business & Professions Code Section 10032 that real estate licensed salespersons and brokers may elect an independent contractor relationship even though they are subject to real estate laws including broker supervision and the law requiring salespersons to only be under one broker’s license. Since specific targeted laws typically take priority over generalized pronouncements under rules of legal analysis, this specific law relating to the ability to have an independent contractor relationship as between brokers and salespersons should still apply to modify, or create an exception to, the non-real estate employment law case.

    The case, Dynamex Operations West, Inc. v. Superior Court, Charles Lee, et al. Real Parties in Interest, was decided by the California Supreme Court on April 30, 2018. It involved a trucking company which hired drivers who alleged misclassification of the drivers as independent contractors instead of as employees. Prior to 2004 the drivers were employees but in 2005, the company changed them to independent contractors. The drivers brought a class action. The decision states the issue is of employee classification in one specific context: “…for purposes of California wage orders, which impose obligations relating to the minimum wages, maximum hours, and a limited number of very basic working conditions (such as minimally required meal and rest breaks) of California employees.” (Emphasis in original court decision.)

    The Court applied a new “ABC” test that requires an independent contractor to pass ALL three tests:

    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 the work performed for the hiring entity.

    As to A, the real estate law requires a broker to supervise the licensed activity of the broker’s salespersons. B&P Code § 10032 addresses that head on and indicates that if the broker and salesperson select an independent contractor relationship by following the three-prong/factors test in the US Tax Code, and also articulated in the California Unemployment Insurance Code ((i) the individual is duly licensed under the B&P Code, (ii) substantially all remuneration is directly related to sales or other output, (iii) the services are performed pursuant to a written contract providing the individual will not be treated as an employee for state tax purposes), then the independent contractor status is recognized but does not remove the supervision or other regulatory requirements. The same analysis applies for the requirement that a salesperson only be licensed to one broker.

    The bottom line is, although this is a landmark case in changing the test, it will likely have little or no impact on those that strictly follow the three-prong test. Both brokers and salespersons should be careful, particularly with transaction coordinators and administrative staff, and even unique team arrangements, that they still have their practices examined to make sure they are squarely under the three-prong test in California’s Code and do not create an issue by blurring the lines under the ABC test. It is possible this will be challenged in the future, but to date, of the several cases filed, none have been decided on the merits and none have been able to certify a class action, the later of which is the honey attracting plaintiff’s lawyers. All are advised to examine whether they have the most current Independent Contractor Agreement and should consider the one with the more robust arbitration clause that provides for individual arbitration with an outside vendor.

    • Duane Gomer May 8, 2018 at 2:52 pm #

      Thank you. I am also on the Real Legal list. Interesting nothing was mentioned at the convention last week. Appreciate you taking the time and thinking of me.

  3. Mike Kelly May 8, 2018 at 3:48 pm #

    I was at CAR meetings and heard an update from the BRE and our CAR attorneys and this didn’t come up. Tempest in a Tea Pot?

    • Duane Gomer May 11, 2018 at 1:35 pm #

      Yes, I know. But the decision was announced on the Monday of the CAR Meeting Week. Nobody had time to review. This week CAR sent out an email discussing this and stated that due to State Regulations Real Estate Licencees are exempt.

      Thank you for taking the time to comment. It is appreciated. Keep commenting and I will keep writing. See you in class.

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