When California Supreme Court handed down the Dynamex decision on May 4th, 2018, people wonder if the "gig economy" is doomed, as the decision is likely to affect Uber and Lyft drivers, and potentially all gig economy participants. But here's a question so far that had not been addressed: how will this affect multi-level marketing aka "MLM"?
In issuing the decision, CSC also handed down a new "ABC test" to see if the work should be classified truly as an independent contractor. To be classified as such, the worker needs to satisfy ALL THREE criteria below:
- (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
- (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Does MLM pass the test? This is important because ALL MLM classify their participants as independent contractors (except for their corporate staff). They may get glorified names like "consultants", "Independent business owners", "brand ambassadors", and so on, but they are independent contractors because they get a 1099 and the end of the year.
But is joining an MLM really as an independent contractor...or as an employee?
Question A: is working in MLM actually free from control and direction of the hiring entity, both in performance and in fact?
This is going to be hard to answer, as it's NOT possible to say definitely either way. Many MLMs have LONG bylaws and joining agreements, including how you can dress and present the company image. (Mary Kay is infamous for its "no pants rule", really, look it up)
Question B: is working in MLM actually performing work that is outside the usual course of hiring entity's business?
This should be a definite "yes". MLMs typically have ZERO sales/promotional department. They may have a sponsorship department buying sponsorships and PR but no "sales force" per se.
Question C: is working for MLM something that the worker already does as an established trade, occupation, or such?
This is a "very likely no". Most people join MLM with zero experience (indeed, this is one of the mantras of MLM, "no experience needed, work as much or as little as you like") Indeed, MLMs often specifically seek out housewives and students with ZERO work experience.
If MLM companies are forced to reclassify much of their associates as employees, this would be the end of multi-level marketing (as we know it). And based on the ABC test presented, there is no reason why vast majority of MLMs will not be forced to do so.
And it may not be a bad thing.
