United States: Dynamex Retroactivity Question Sent To California State Court

On September 24, 2019, the U.S. Court of Appeals for the Ninth Circuit certified to the Supreme Court of California the question of whether that court's landmark 2018 decision in Dynamex v. Superior Court should be applied retroactively. In May 2019, the Ninth Circuit, in Vazquez v. Jan-Pro Franchising International, Inc., held that Dynamex had retroactive effect; in July 2019, however, the appeals court withdrew that opinion and indicated that it would instead ask the California Supreme Court to decide this state-law matter.

By way of very brief background, in Dynamex, the California Supreme Court upended 30 years of precedent and adopted a new test for determining whether a given worker was properly classified as an independent contractor or an employee for purposes of California's wage and hour orders. In the case, the court adopted the so-called "ABC test" for determining how a worker is properly classified. Under the ABC test, a worker is presumed to be an employee (and thus covered by a range of state workplace wage and hour laws), unless a hiring entity can prove: (a) the worker is not subject to the hiring entity's direction and control in the performance of his or her work; (b) the worker is doing work outside the hiring company's usual course of business; and (c) the worker is customarily engaged in an independently established trade or occupation. The ABC test is an especially hard test to satisfy, and results in many more workers begin classified as statutory employees.

On the heels of the Dynamex decision, California adopted the ABC test to labor laws more broadly by way of controversial legislation ("Assembly Bill 5" or "A.B. 5"), which was recently signed into law. A.B. 5 applies the ABC test across a wide range of state labor laws, but at the same time includes a series of statutory exemptions and some limitations. Equally important, A.B. 5 appears intended to focus on the narrow question of whether the company's worker is an employee or an independent contractor, rather than the broader inquiry of whether that company may be subject to liability as a joint employer. Many plaintiffs have urged the courts to apply Dynamex to assess joint-employer status.

In certifying the question of retroactivity, the Ninth Circuit went to great lengths to stress the holdings in its prior opinion that it was not certifying; presumably, those conclusions will remain the same regardless of whether Dynamex is applied retroactively or prospectively only. Specifically, the Ninth Circuit restated its conclusions that prior decisions did not prevent the Jan-Pro plaintiffs from contending they were employees under Dynamex; that should the California Supreme Court conclude that Dynamex applies retroactively, it would not violate Jan-Pro's federal due process rights; and that prior California state case law recognizing the "special features of the franchise relationship" had no bearing on whether a worker was an employee under the ABC test.

It is now up to the California Supreme Court to determine whether it will take up the certified question of retroactivity and issue an opinion (a process that may take months if not years). Of perhaps more immediate concern to employers attempting to navigate this legal landscape, it now seems entirely possible that the questions of worker misclassification and/or joint employer status might proceed along two parallel tracks: the enforcement of A.B. 5 by state regulators, and the scope and interpretation of Dynamex by the courts, with no guarantee that these two tracks will arrive at the same conclusions. In that light, employers that use contract labor would be well advised to consult counsel as to the impact of these decisions and the recently enacted legislation on their workforces.

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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