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Transpo Cos. Brace For Post-Dynamex Legal Onslaught

Law360—Linda Chiem

The California Supreme Court's recent Dynamex decision upending the standard for determining whether workers are employees or independent contractors will trigger a fresh wave of misclassification lawsuits against trucking, logistics, port service and gig-economy companies, attorneys say, forcing many to re-evaluate their business models.

Commercial trucking, drayage and other transportation service companies that have long used independent contractors or independent owner-operators are reeling from the state high court's April 30 decision adopting a standard known as the "ABC" test that presumes workers are employees instead of independent contractors for purposes of state wage orders, which govern items such as overtime and meal and rest breaks.

With the ruling, the burden is now on employers to prove that workers aren't employees in the Golden State.

Management-side attorneys describe Dynamex as a groundbreaking and disruptive ruling that complicates how transportation service providers will comply with a patchwork of state requirements. Plaintiffs' attorneys, meanwhile, say the ruling ensures companies will no longer be allowed to dodge minimum wage laws — and snag unfair competitive advantages — by classifying large chunks of their workforce as independent contractors.

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The state high court upheld a lower court's certification of a class of Dynamex Inc. delivery drivers in a wage-and-hour case, noting that Dynamex is a delivery company and its drivers make deliveries.

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By rejecting a classification test used in the Golden State for almost three decades and instead adopting the ABC test already used by Massachusetts and New Jersey, the California Supreme Court made it far easier for plaintiffs' attorneys to pursue worker misclassification class actions by clarifying that the more rigid three-prong ABC test applies in California, and not the previous 11-factor test that was established by a 1989 ruling known as S.G. Borello & Sons Inc. v. Department of Industrial Relations.

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The first of those suits are already in.

Shortly after Dynamex, ride-hailing company Lyft Inc. and Postmates Inc., whose couriers deliver food, groceries and other goods on-demand, were hit with a pair of putative class actions in California state court claiming they mislabeled drivers and couriers as independent contractors and insisting the companies cannot pass the new standard.

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The ABC standard presumes all workers are employees unless a business can show the worker is free from its supervision, performs work that is outside the usual course or place of business, and works "in an independently established trade, occupation or business of the same nature" as the work they do for the entity that is hiring them. And each of those elements — A, B and C — must be met for an independent contractor classification to hold up for purposes of wage orders.

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Jahan Sagafi, partner in charge of Outten & Golden LLP's San Francisco office, who represents employees in wage-and-hour and other class actions, agreed that the state high court issued a "carefully reasoned" opinion that promises to have broad implications for California workers.

"Unless employers promptly respond by bringing their practices into compliance, I would expect more enforcement actions brought by plaintiffs alleging misclassification," he said. "Given that companies can often make more profit by evading the law than they have to pay in penalties and settlements, I would also expect some employers to succumb to the pressure to continue breaking the law."

Recognizing the writing on the wall, some California attorneys say they've been prepping clients to re-evaluate their worker relationships.

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