What is the impact of the new Dynamex Opinion on San Diego businesses who rely upon independent contractors?  Does your San Diego or Southern California business have contracts with independent contractors or use an independent contractor model as part of your current business strategy?  Do you have any 1099 workers?

The impact of the new Dynamex opinion on San Diego businesses with independent contractors cannot be overstated.  It will have far-reaching implications for companies with independent contractors in almost every type of business or non-profit entity.  What is the new “ABC Test” established by this new ruling?  What is the 4 year look back period and how does this compound your financial risk?  Will this force California companies to re-think the relationship with 1099 workers and independent contractors?  How can your entity come into compliance with Dynamex and protect against substantial financial and business risk?

Click on the image to the left or here to view or download your free copy of “What You Need to Know about the Recent Dynamex Decision and the Classification of 1099 Workers and Independent Contractors.

Issues of Concern for Employers Regarding the Recent Dymamex Decision

It is necessary to immediately review all business models which contract with individuals or external entities who provide work to your entity as independent contractors.  This applies to all companies and organizations with a physical presence in California or independent contractors who live and work in California or provide even temporary support to any entity in the state.

The California Supreme Court recently issued an opinion which will have a profound impact on all business, medical and healthcare corporations and non-profit entities who provide any work (even part-time, short term or temporary) to independent contractors as part of their business strategy.  The opinion, released April 30, 2018, in the case of Dynamex Operations West, Inc. v. Superior Court (often referred to simply as “Dynamex”) dictates immediate and substantial changes in business practices and employment related contracts for many San Diego area corporations, LLCs, S-Corporations, Medical or Professional Corporations and non-profit entities and 501(c)(3) organizations.

A New Presumption of Employment and a New ABC Test for Independent Contractors

The most important impact of the new Dynamex Opinion is the new presumption that any worker is an employee.  This important distinction places the responsibility squarely upon the shoulders of your business, corporate entity, non-profit organization or any individual to prove a worker is in fact an independent contractor and not an employee.

The new ABC test established by the Dynamex ruling will require that any entity or individual providing work to the independent contractor must prove:

  1. “that the worker is free from control and direction over performance of the work both under the contract and in fact.” and
  2. “that the work provided is outside the usual course of the business for which the work is performed,” and
  3. “that the worker is customarily engaged in an independently established trade, occupation or business.”

Item “B” which states “that the work provided is outside the usual course of the business for which the work is performed” – should raise an immediate alarm for all organizations, companies, corporations, LLCs, partnerships and business entities who classify any worker as an independent contractor.  Unless your company is dealing with a true independent – such as the Court’s examples of a plumber or electrician which have nothing to do with your actual primary business (unless your business is related to plumbing or electrical work in this example) – you will not be able to get past this provisional test and justify classifying any individual or group of workers as independent contractors.

Even if you or your business or organization were to independently contract with an individual or another business entity with their own business or professional license, outside of your direction and control, if the work performed under a contract with an independent contractor falls within the usual course of your own core business activity the worker must be classified as an “employee” and not an independent contractor for the purposes of a Wage Order.  You must therefore collect all appropriate taxes and may be required to extend the same benefits offered to other employees of similar stature.

It’s a Simple Matter for the IRS FTB and EDD to Identify and Target Your Company

Many business owners and managers may dismiss or attempt to minimize the impact of the new Dynamex Opinion on smaller companies and organizations.  “They’ll never come after us – we’re too small.”  Misclassification of an “employee” as an independent contractor exposes an entity of any size to substantial financial and business consequences.  Tax agencies such as the IRS and FTB and other agencies such as the EDD simply have to use their own internal IT systems and databases to identify and target business and non-profit entities who provided 1099’s to independent contractors.  The EDD regularly reviews and audits every California employer (including those who only work with 1099s) searching for misclassification.  It will be simple matter for any of these agencies to identify your entity and pursue an investigation or audit.

A determination of misclassification from any federal or California government agency immediately exposes your company or non-profit organization to harsh civil penalties under California law.  Your company will be also financially liable for the repayment of back income taxes, as well as “uncollected” Workers Compensation, Unemployment, Medicare and Social Security taxes.

The misclassification of “employees” as “independent contractors further exposes your business entity or non-profit organization to individual plaintiff’s lawsuits or class action lawsuits which seek additional financial damages and compensation such as unpaid overtime and the monetary value of benefits which would have been provided if the independent contractor had been “properly classified as an employee” by your entity.

The financial risk and exposure for all California businesses and those who provide work to independent contractors within California cannot be overstated or exaggerated.  The implications of the Dynamex opinion is an immediate and substantial risk the viability and survival of your company or organization.

Contact Experienced San Diego Employer, Business and Litigation Defense Attorneys

The impact of the new Dynamex opinion to any company or organization with independent contractors or 1099 workers is genuine, immediate, substantial and threatens the very survival of your company.

The Watkins Firm has served the San Diego and Southern California business community for decades.   We have the experience, expertise and employer-focused related experience necessary to help your company to evaluate present independent contractor operational models, the potential impact of the Dynamex opinion and the development of new strategies to come into compliance with California’s new and existing employment laws.

We invite you to review the recommendations of our clients and the legal industry and contact the Watkins Firm or call 858-535-1511 for a free consultation or to schedule an appointment with one of our business, employer defense and employment attorneys.  Learn more about these important developments and how to protect your successful company or organization now and in the future.

The time to take action is now.