The classification of an individual performing services for an operating company has long been an area of ambiguity and contention. Oftentimes, an employer may want to classify a new hire as an independent contractor. Oftentimes, an employee may want to be classified as an independent contractor. The critical hot buttons at issue with the classification are tax withholdings, tax deductions, eligibility for overtime, meal breaks, rest breaks and qualification for benefits.
The 9th Circuit’s Dynamex Decision: What You Need To Know1. Dynamex DOES apply retroactively under California law. The Appellate Court affirmed the the California Supreme Court’s interpretation that Dynamex does apply retroactively, quoting it “is basic in our legal tradition” that “judicial decisions are given retroactive effect.” Ok, that resolves California law. But what about retroactive application under federal law? 2. Dynamex also DOES apply retroactively under Federal law. The defendant-appellee argued that retroactive application was a violation of Due Process. Here, the Court distinguished between retroactive application in a civil context versus a criminal context. As this was a civil matter, the Court referenced the analysis of a legislative act, quoting “adjusting the burdens and benefits of economic life come to the Court with a presumption of constitutionality” and are evaluated under a rational basis test. Here, we have a judicial rule (i.e. Dynamex) and not a legislative act. Therefore, the court reasoned, “[e]ven more deference is owed to judicial common-law developments, which by their nature must operate retroactively on the parties in the case.” 3. Where can an Employer Win on Summary Judgment (or where might there be no employer-employee relationship)? As we advise our client employers, Prong B of the ABC test provides the clearest opportunity. The example used is where a retail store hires a plumber to repair a bathroom leak, then in that situation the hiring entity (retail store) is not engaged in the same usual course of business as the putative employee (plumber). See our earlier articles regarding Dynamex for a review of the ABC test. 9th Circuit in a New York State of Mind: The 9th Circuit is frequently portrayed as populated by jurists from the West Coast or Pacific Northwest. However, this 9th Circuit decision was authored by the Honorable Frederic Block, Unted States District Judge for the Eastern District of New York, sitting by designation. ALG in the Courtroom: The Honorable William Alsup, District Judge was the Presiding Judge on the Appeal Panel. We recently appeared before Judge Alsup in a client matter. How Do You Manage the Risk?: Business and life is about risks, mitigating risks and managing risks. Litigation arising from misclassification is one of those risks. The first approach a company (or contractor) can take is to set up the work relationship as an employer-employee relationship. The second approach would be to set up the relationship as an independent contractor relationship after running through the test with your legal counsel, and with full appreciation of the risks of misclassification in financial terms. The third approach is to search for insurance to cover this risk. At the present time, we are not aware of any, but new products are being created all the time, so we recommend that employers revisit this issue with their insurance brokers periodically.
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