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On April 30, 2018, the California Supreme Court issued a decision that changed the way companies analyze whether to classify workers as independent contractors or employees.  In the year following Dynamex Operations West, Inc. v. Superior Court, there have been more questions than answers on Dynamex’s practical implications.  Entire industries, including the court reporting industry, have asked – should we now classify workers, who for decades have been independent contractors, as employees?

Why does this matter?  If a court reporter is an employee, then the reporter is entitled to a number of protections under the California Labor Code.  For example, companies would have to pay court reporters overtime and reimburse their business expenses.  They would have to provide employees with the opportunity to take meal periods and rest breaks.  Companies would have to include employees on their workers’ compensation insurance, pay payroll taxes, provide paid sick leave, and comply with many other labor requirements.  In other words, if Dynamex means court reporters should be re-classified as employees instead of independent contractors, it’s a game-changer for court reporters and court reporting firms.   

What is Dynamex’s game-changing test?  To summarize, for an entity to classify its workers as independent contractors, the hiring entity must establish:

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

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

The greatest challenge for the court reporting industry is the “B” prong (although for court reporters who work for the courts, the “A” prong also presents a significant challenge).  According to Dynamex, “Workers whose roles are most clearly comparable to those of employees include individuals whose services are provided within the usual course of the business of the entity for which the work is performed and thus who would ordinarily be viewed by others as working in the hiring entity’s business and not working, instead, in the workers’ own independent business.”  Therefore, if a worker is performing a service as a part of a company’s usual business, then companies should classify workers as employees and not independent contractors. 

Does this mean court reporters should immediately re-classify their independent contractors as employees?  That depends.  Plaintiffs’ lawyers have already begun filing class action lawsuits against big court reporting companies based on Dynamex. 

But wait – could a fix actually come from Sacramento?  Assembly Bill 5, which is currently making its way through the California Legislature, exempts certain industries from Dynamex.  While court reporters are not explicitly listed, AB 5 (as presently drafted as of May 30, 2019) exempts those performing work under a contract for professional services if the hiring entity demonstrates that all of the following factors are satisfied:

  1. The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity.
  2. If work is performed more than six months after the effective date of AB 5, the individual has a business license, in addition to any required professional licenses or permits for the individual to practice in their profession.
  3. The individual has the ability to use their own employees in the completion of the work, where reasonable, and has the authority to hire and fire other persons who assist in providing the services. Nothing in AB 5 requires an individual to hire an employee.
  4. The individual has the ability to engage in other contracts for services than with the hiring entity.
  5. Both the individual and the hiring entity have the ability to negotiate compensation for the services performed.
  6. Outside of project completion dates and reasonable business hours, the individual has the ability to set their own hours.
  7. For services that do not reasonably have to be performed at a specific location, the individual can determine where to perform the services under the contract.
  8. The individual is customarily engaged in the same type of work performed under the contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work.
  9. The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.

Under AB 5, the term “individual” includes any person providing services through a sole proprietorship or any different business entity.  To constitute “professional services,” the service must either (1) require an active license from the State of California and involve the practice of one of the following recognized professions: law, dentistry, architecture, engineering, or accounting; or (2) require an advanced degree that customarily involves a prolonged course of specialized intellectual instruction and study in the field of marketing or the administration of human resources from an accredited university, college, or professional school, as distinguished from a general academic education.  Many court reporters should be able to meet these requirements.     

While AB 5 is not currently the law, if it passes, then the old test (a multi-factor balancing test set forth in S.G. Borello & Sons Inc. v. Department of Industrial Relations) will become the law for those workers that meet the above test.  As you can see, this issue is quite dynamic!  There is even a push to get court reporters explicitly exempted from Dynamex like other professions.  Stay tuned for important updates.  You can count on CCRA to educate you on this issue and other issues affecting our profession.

Legal Disclaimer: The information in this article (i) is provided for general informational purposes only, (ii) is not provided in the course of and does not create an attorney-client relationship; (iii) is not intended as a solicitation, (iv) is not intended to convey or constitute legal advice, and (v) is not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any of the information in this article without first seeking qualified professional counsel on your specific matter.

Joseph G. Naddour is a partner at the employment boutique law firm of Larsen & Naddour LLP in Newport Beach, California.  He counsels employers on day-to-day employment matters such as personnel policies, terminations of employment, and compliance with California and federal employment laws.  Joseph also represents clients in all areas of employment litigation, including wrongful termination, harassment, discrimination, retaliation, and wage and hour claims.