• Dynamex Ruling Makes it More Difficult to Classify Employees as Independent Contractors

    The California Supreme Court recently issued its long-awaited opinion in Dynamex Operations West v. Superior Court, clarifying the standard for determining whether workers in California should be classified as employees or independent contractors. To ensure conformity with the Court’s ruling we recommend a review of your independent contractor relationships. Given the potentially very high costs of misclassification – multiple violations of California and Federal wage and hour laws with attendant back pay, overtime, penalties, interest and attorney fees – it is prudent to confirm that your agreements are fully compliant.

    The Dynamex Court held that individuals are employees unless the entity classifying the individuals can shoulder the burden of establishing that they should, in fact, be independent contractors under the ABC test. To meet the ABC test, each of the following three factors must be established:

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

    B. That the worker performs work that is outside the usual course of the hiring entity’s business; and

    C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

    Factor A which requires that the worker must be free of the control of the hiring entity in the performance of the work can be based on a myriad of related factors evidencing control of the employer over the worker’s performance of work, including whether the worker supplies his own tools or controls the specific details of his work, without interference by the hiring entity.

    Factor B mandates that to be considered an independent contractor, a worker must perform work that is outside the usual course of the hiring entity’s business. To illustrate the meaning of the “usual course of business,” the Supreme Court gave the example that “when a retail store hires an outside plumber to repair a leak in a bathroom on its premises or hires an outside electrician to install a new electrical line, the services of the plumber or electrician are not part of the store’s usual course of business and the store would not reasonably be seen as having “suffered or permitted” the plumber or electrician to be working as its employee. On the other hand, “when a clothing manufacturing company hires work-at-home seamstresses to make dresses form cloth and patterns supplied by the company that will thereafter be sold by the company,” or “when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes,” the works are part of the hiring entity’s usual business operation and the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees” and not as independent contractors.

    Factor C which requires that workers must be customarily engaged in an independently established trade, occupation or business of the same nature as the work performed, requires a showing that the worker has “independently made the decision to go into business for himself or herself.” Such workers would be expected to have taken “the usual steps to establish and promote his or her independent business,” for example through “incorporation, licensure, advertisements, routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like.”

    One final note, the Dynamex ruling only applies to wage orders, which set rules on minimum pay and basic working conditions such as meal and rest breaks. While the decision does not directly apply to other employment claims, such as workers’ compensation claims or tax claims, it seems probable that trial courts and courts, in general, will apply the Dynamex case to other California labor code claims that protect workers’ rights. Indeed, the case will likely trigger more litigation over each of the three factors and what they really mean, as applied to various types of workplaces.

    For further information on determining whether workers in California should be classified as employees or independent contractors, or assistance in reviewing your employee agreements for compliance, contact Coblentz Business and Employment partner Steve Lanctot at slanctot@coblentzlaw.com.

  • Commercial Landlords Beware: Competing Tax Measures on June Ballot

    Competing special purpose tax measures are on the San Francisco June ballot, both of which would raise the tax on gross receipts from the lease of commercial space in San Francisco.  The tax rates in the measures – generally, 1.7% and 3.5% – would be a steep increase over the current gross receipts tax rate applicable to commercial rents of around 0.3%.  Either proposed tax would be in addition to the gross receipts tax already in effect and would become operative on January 1, 2019.

    Prop D: Housing For All Measure

    Proposition D would impose a tax of 1.7% on gross receipts from the lease of commercial space in San Francisco to fund low- and middle-income housing and homelessness services.

    Exemptions would apply to:

    • A small business with gross receipts within San Francisco of $1,000,000 or less.
    • Private foundations and non-profit organizations that are exempt from income taxation under California or federal law. Further, rents paid by such organizations are not considered gross receipts subject to the tax.
    • Any structure or portion thereof being used for “production, distribution and repair”, “retail sales and services”, or “entertainment, arts and recreation” (as these categories of uses are defined in San Francisco’s Planning Code).

    This measure is sponsored by San Francisco Supervisors Ahsha Safai, Jeff Sheehy, Katy Tang, Malia Cohen and Mark Farrell.  A two-thirds supermajority vote is required for the approval of this measure.

    Prop C: Universal Childcare for San Francisco Families Measure

    Proposition C would impose a tax of 1% on gross receipts from the lease of warehouses in San Francisco and 3.5% on gross receipts from the lease of all other commercial space to fund early care and education for children up to five years old.

    Exemptions would apply to:

    • A small business with gross receipts within San Francisco of $1,000,000 or less.
    • Private foundations and non-profit organizations that are exempt from income taxation under California or federal law. Further, rents paid by such organizations are not considered gross receipts subject to the tax.
    • Rents paid by federal, state or local governments.
    • Any structure or portion thereof being used for “industrial uses”, “arts activities”, or “retail sales or service activities or establishments” other than “formula retail” uses (i.e., chain stores) (as these categories of uses are defined in the San Francisco Planning Code).

    “Industrial uses” and “arts activities” are significantly narrower subsets of the uses that comprise “production, distribution and repair” and “entertainment, arts and recreation”, respectively, under the Planning Code.  For example, unlike under Proposition D, “business services” uses would not be exempt.  Another difference from the Proposition D exemptions, as noted above, is that “formula retail” uses would not be excluded under this measure (i.e., leases for chain stores such as Starbucks would be subject to the tax).

    San Francisco Supervisors Jane Kim and Norman Yee led the citizen initiative campaign for this measure.

    Proposition C requires a simple majority to pass, whereas Proposition D requires a two-thirds vote to pass.  However, only one of the two proposals can be adopted because each measure provides that if both are approved by San Francisco voters in June, then the measure with more affirmative votes will become operative.  The San Francisco Controller estimates that Proposition D would generate approximately $70 million in net annual revenue for San Francisco compared with approximately $146 million expected from Proposition C.