California Supreme Court Takes Up Key Dynamex Retroactivity Question

| Dec 15, 2019 | Employment Litigation |

See Update.

As discussed previously on this blog, the question of whether Dynamex applies retroactively is a fascinating one that will have significant ramifications on all industries using independent contractors. The Ninth Circuit Court of Appeal initially determined Dynamex could be applied retroactively in Vazquez v. Jan-Pro Franchising International but later withdrew that opinion and referred the question to the California Supreme Court, which is now taking up the issue.  Meanwhile, in October 2019, the Second Appellate District of California ruled in Gonzales v. San Gabriel Transit, Inc., that Dynamex’s “ABC test” for determining independent contractor status under California state wage orders, applied retroactively to certain types of wage and hour claims.

With the matter unsettled, the California Supreme Court’s decision could very likely unsettle California’s labor market in an even greater way than was initially anticipated after Dynamex.

If the Supreme Court decides Dynamex can apply retroactively, this will mean independent contractors who fail the new ABC-test will be deemed employees even if they were classified as independent contractors prior to Dynamex and were considered independent contractors under pre-Dynamex law. This will leave employers subject to liability in wage and hour actions arising pre-Dynamex even if their classification of their workers was proper under the law at the time. Needless to say, this creates potentially massive and unexpected liability. Of course, the passage of AB 5, which appears intended to apply the ABC-test retroactively, confuses the issue further.

While it is fairly standard for court decisions to apply retroactively, as they are deemed to be simply clarifying “what the law has always been,” the case of Dynamex seems to be different. Prior to Dynamex the decision, whether a worker was an employee or an independent contractor was determined by the Borello test, which weighed many interrelated factors. The stringent requirements in the ABC-test have changed this approach and altered the analysis of whether a worker is an employee. Dynamex has, to a degree, created a new law which not only makes it far more difficult to classify workers as independent contractors but is essentially a different standard from what came before.  Many workers who had been independent contractors under Borello will suddenly be deemed employees under the ABC-test.

Objectively, Dynamex’s adoption of the ABC-Test does not appear to be the case of saying what the law has always been, because the ABC-test was never part of California law.  In fact, Dynamex took its ABC-test from a Massachusetts statute. In Massachusetts, for unemployment compensation purposes, the state applied a three-part test to determine if a worker is an employee or independent contractor. The test, first adopted in 1990 required the employer claiming a worker is an employee to prove:

“(a) such individual has been and will continue to be free from control and direction in connection with the performance of such services, both under his contract for the performance of service and in fact; and

(b) such service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed; and

(c) such individual is customarily engaged in an independently established trade, occupation, profession or business or the same nature as that involved in the service performed.”

Notably, the B-Prong had a second alternative clause that allowed for independent contractor status if the worker performed the work outside the hiring entities’ premises. In 2004, Massachusetts amended its law to remove the alternative clause making the law much stricter and harder for businesses to meet and expanded its reach beyond just unemployment compensation. This was a deliberate legislative decision made in response to a push by Massachusetts’ construction industry trade unions. This amended version is the test set out in Dynamex.  Essentially, the Dynamex court’s decision asserts that California’s worker classification test has always been the same as Massachusetts’ statute as it was amended in 2004.  Because Dynamex was a unanimous decision of the California Supreme Court, a ruling finding that the law is not retroactive seems unlikely.  Nevertheless, introducing a test identical to the amended Massachusetts statute seems to stretch the idea that this particular ABC test was always part of California law.

With the evolution of Dynamex, and the potential for new vulnerability and liability, it is important for employers to a have experienced employment and transportation lawyer on their side to navigate this new environment.

Update:

On January 15, 2020, the California Supreme Court agreed to review the Gonzalez case raising questions as to the scope and retroactivity of its landmark 2018 Dynamex decision, issuing an order that stated in part, “Further action in this matter is deferred pending consideration and disposition of a related issue in Vazquez v. Jan-Pro Franchising International, Inc., S258191 (see Cal. rules of Court, rule 8.512(d)(2)), or pending further order of the court.”  This temporarily suspends the binding effect of the Gonzalez decision on lower courts.

On February 26, 2020, the California Supreme Court clarified that its review in Jan-Pro was limited to a single issue: “The question of California law that we have agreed to decide is the question as posed by the Ninth Circuit, namely, ‘’Does the Court’s decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, apply retroactively?’ Briefing and argument in this matter are to be limited to this question.”

It will be many months before briefing is completed and a decision is rendered.