A wholesale reclassification of workers would have significant consequences for many different sectors in the state’s economy, according to a recent study by Beacon Economics.
“Since the nature of, and reliance on independent contracting varies by industry, a one-size fits all policy ignores the complexity and nuance of such work arrangements, and the value they bring to California’s economy,” the study states.
As many employers know, the California Supreme Court outlined a new test in Dynamex Operations West, Inc. v. Superior Court, No. S222732 (April 30, 2018) to determine whether a worker must be classified as an employee, rather than as an independent contractor, and subject to all the laws governing wages, hours and rest breaks, as well as the withholding of taxes.
The Supreme Court replaced a totality of circumstances test that it had created with a decision in 1989 and replaced it with an “ABC” test of three factors, the most significant being that the worker performs work which is not the hiring entity’s usual business.
Beacon Economics Executive Summary
In the executive summary of its report, Beacon notes that the California Supreme Court decision in Dynamex has the potential to be a “watershed moment” for the state’s economy.
The court’s guidelines for determining whether certain categories of workers should be considered as employees or independent contractors have far-reaching consequences in relation to worker regulations and their protection under California Law, Beacon points out. While specifically related to the delivery service industry, the Dynamex decision “will potentially make it more difficult for companies to classify workers as independent contractors in other sectors of the economy. The decision is part of a broader legislative and judicial effort to define and understand the changing nature of employer-employee relations.”
Beacon goes on to comment: “While worker classification and ‘alternative’ work arrangements have received widespread media attention with the advent of the gig economy, alternative work arrangements have long been a part of modern economies.”
The Beacon analysis aims to shed light on independent contractors and similar alternative work arrangements by:
The Beacon study finds that:
The full report, “Understanding California’s Dynamex Decision 2018,” is available on the Beacon Economics website.