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California Supreme Court Ruling Will Bankrupt California Employers; Aliant, LLP Recommends Immediate Action


California Supreme Court Ruling Will Bankrupt California Employers; Aliant, LLP Recommends Immediate Action

The California Supreme Court's decision in Dynamex alters the way California businesses must classify independent contractors, even those employed through a sub-contractor, and will lead to significant lawsuits and catastrophic liability exposure for many employers.

PR Newswire

LOS ANGELES, July 24, 2018 /PRNewswire/ -- The ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018) will disrupt California's established tradition of utilizing independent contractors in many industries, says Jacob Stein, managing partner of Aliant, LLP.

In a unanimous ruling on April 30, the California Supreme Court adopted a new standard to test whether a worker should be classified as an employee or an independent contractor. The new standard in Dynamex uses the "ABC Test," which assumes that workers are employees unless they can meet the three primary requirements for an independent contractor. The worker must be free from the control and jurisdiction of the hiring company regarding performance of the work, be able to perform work that falls beyond the domain of the hiring company's business and must be regularly engaged in a recognized trade that is independently pursued. While Dynamex establishes a new standard, it also interprets existing law, and has a retroactive effect.

Practical Effect:
The difference between an employee and an independent contractor is especially significant for those industries that frequently use subcontractors – construction, janitorial, transportation and delivery. For example, a construction company may classify its own workers as employees but may use sub-contractors who classify their workers as independent contractors.  The misclassification liability will attach not only to the construction company but will also result in personal liability for the individual owners of the construction company.

The stricter standard of classification for independent contractors will contribute to a general increase in the number of wage and hour lawsuits against California employers. "We have had numerous phone calls from clients and prospective clients in construction, janitorial, delivery and many other industries, who are all afraid that Dynamex will bankrupt them," says Jacob Stein, the managing partner of Aliant, LLP. "The Dynamex decision interprets existing law and reaches far into the past history of every employer," continues Stein. "The liability for misclassification, including the personal liability of the owners, will be catastrophic for many California businesses." 

California employers may be liable, at a minimum, for penalties of 1.5% of the wages, 40% of Social Security and Medicare (FICA taxes) not withheld, and 100% of the matching FICA taxes not paid by the employer.

Fortunately for many California employers and the individual owners of California businesses there are pre-emptive steps that can be taken to protect assets from lawsuits and plaintiffs' claims. Jacob Stein of Aliant, LLP has represented hundreds of California employers facing wage and hour and other employment related lawsuits. "There are sensible asset protection structures that we develop for our clients that allows them to insulate their business and personal assets from claims of creditors," says Stein, "but they must act quickly before they are hit with a lawsuit.  Once the lawsuit has been filed asset protection becomes an uphill battle."

California employers concerned with their exposure in light of the Dynamex decision should contact Aliant, LLP at 818-933-3838.

About Jacob Stein
Jacob Stein, Esq. is the managing partner of Aliant, LLP, and is one of the country's best-known asset protection lawyers. Over the past 20 years Jacob has completed over 3,000 asset protection transactions for both individuals and businesses. He is the author of numerous articles and several books and has taught over 600 seminars. To learn more about Jacob and the asset protection planning that can be implemented for California business owners, please visit

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Natasha Zammiello  

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