United States: Ninth Circuit: Dynamex Decision On Independent Contractor vs. Employee Applies Retroactively

Key Points

  • In Vazquez v. Jan-Pro Franchising Int'l, Inc., the 9th Circuit held that a landmark California Supreme Court decision regarding independent contractors and employees applies retroactively.
  • The 9th Circuit held that the California Supreme Court's decision in Dynamex Ops. West Inc. v. Superior Court, 4 Cal. 5th 903 (2018) was subject to the default rule that judicial decisions apply retroactively, and that retroactive application of Dynamex did not violate due process.
  • Vazquez does not bind state courts, and defendants in independent contractor misclassification lawsuits may still argue that Dynamex does not apply in some circumstances (e.g., if a claim does not arise under the wage orders or if the defendant is an alleged joint employer), but defendants should also be prepared to argue the merits of the Dynamex test.

On May 2, 2019, in Vazquez v. Jan-Pro Franchising Int'l, Inc., the 9th Circuit held that a landmark decision by the California Supreme Court regarding independent contractors and employees applies retroactively. The California Supreme Court decision, Dynamex Ops. West Inc. v. Superior Court, 4 Cal. 5th 903 (2018), established a broad new test for determining whether an alleged independent contractor should be considered an employee under the California wage orders. Commonly referred to as the "ABC" test, Dynamex considers a worker to be an employee of the "hiring entity" unless the hiring entity establishes: "(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such 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 for the hiring entity." Id. at 916-17.

Because Dynamex upset decades of precedent relying on the flexible, multifactor "Borello" test, litigants have argued that the ABC test should apply only prospectively. In Vazquez, the 9th Circuit rejected that argument, becoming the first appellate court to hold that the ABC test applied retroactively.

The 9th Circuit rejected two independent arguments for applying Dynamex only prospectively. First, noting the default rule that judicial decisions have retroactive effect, it held that Dynamex did not fall into an exception under California law for decisions that "'change[] a settled rule on which the parties below have relied.'" Vazquez, slip op. at 23 (quoting Williams & Fickett v. City of Fresno, 395 P.3d 247, 262 (Cal. 2017)). The Court found persuasive that the California Supreme Court had summarily denied the defendant's petition in Dynamex for clarification that the ABC test was prospective only, which "strongly suggested that the usual retroactive application, rather than the exception, should apply to its newly announced rule." Id. at 24. Relying on dicta from the California Court of Appeal, the 9th Circuit also opined that retroactive application of Dynamex "'represented no greater surprise than tort decisions that routinely apply retroactively.'" Id. at 25 (quoting Garcia v. Border Transp. Grp., LLC, 28 Cal. App. 5th 558, 572 n.12 (2018)).

Second, the Court held that applying Dynamex retroactively did not violate due process. It observed that due process challenges to legislation "adjusting the burdens and benefits of economic life" are subject to rational basis review, and concluded that challenges to judicial rules must be given even greater deference. Slip. op. at 27. Accordingly, the Court held that applying Dynamex retroactively served the remedial purposes of the wage orders, and therefore was "neither arbitrary nor irrational." Id. at 27-28.

In the wake of Vazquez, defendants in independent contractor misclassification lawsuits should be aware that there are still arguments against application of the ABC test in some circumstances. For example, there is authority holding that Dynamex does not apply to "non-wage-order claims" (Garcia, 28 Cal. App. 5th at 571) or to claims against alleged joint employers (Curry v. Equilon Enters., LLC, 23 Cal. App. 5th 289, 314 (2018)). Vazquez also binds only district courts in the 9th Circuit, so state court defendants may still argue that Dynamex applies only prospectively. However, while the retroactivity argument may still be available in some cases, defendants arguing retroactivity should be prepared to argue the merits of the ABC test.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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