How Does the Dynamex Decision Affect the California’s Staffing Industry?

March 25, 2019

So, what is the “Dynamex decision” and how will it affect the staffing industry?   The Dynamex decision is the landmark decision of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018),  after which a much stricter test to determine who is an independent contractor and who is not an independent contractor was adopted.  The court established the “ABC” test as its new method of determining  independent contractor status.

The ABC Test

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

(B) The worker performs work that is outside the course of the hiring entity’s business; and

(C) The worker is customarily engaged in an independently established trade, occupation, or business.

Except in very few specific cases, the ABC test is easy to administer.   As stated in the October 2018 issue of JDSupra,  the new standard on its face only pertains, at least at this point, to wage issues, and not expressly to workers compensation or payment of payroll taxes (which incorporate their own definitions of “employee” and “independent contractors”).  The Dynamex case expressly carves out payment of employee expenses as not included within the new standard.   I believe, you’ll see this change causing companies to look for 3rd party employers like staffing agencies and leasing companies in order to maintain a legal 1099 relationship.

This test is being applied against a strong business climate, increasing government immigration enforcement, and the emerging gig economy.   This effect, appears to me, to be driving California’s thriving staffing industry and add another foundational layer supporting long-term growth of 3rd party employers.

New Opportunity?

It will be very interesting to see how the industry handles this “new opportunity” when it is already struggling to find workers to support existing demand.  And, there could be trouble on the horizon for a significant number of California staffing agencies that currently don’t have their own workers’ compensation policies.  This makes these agencies a paper-thin veil between injured employees and their work-site companies.  Until recently, regulators have been slow to pursue any action that will curtail the growth of these illegal operations.

As an innovative entrepreneur, I see this as a new glut of opportunity coming into the staffing market. It’s going to be interesting to see how the Dynamex decision spurs healthy growth or exposes an industry in need of cleaning up?  Time will tell.

Michael DiManno

Michael A. DiManno is a thought leader and entrepreneur with over 30 years experience of innovation and fast growth with startup companies in Technology, Insurance, and Employment, or as he calls it “TIE” Services. Mr DiManno founded EmployEnsure, LLC (EE) a holding company and incubator for developing “cool stuff” for clients not being served by traditional “TIE” industries. He currently serves as CEO of EE’s signature brands: Samuel Hale and TalentHire.

Michael is a writer and speaker for entrepreneurial groups as well as “TIE” industries. He also supports his wife Debbie’s non-profit, Cour Training, which helps teens survive and thrive in the modern era of constant connection. They have raised 4 children and live with their two Rhodesian Ridgebacks in Northern California.

For more information, contact Mike directly.