On May 2, 2019, the Ninth Circuit in Vazquez v. Jan-Pro Franchising Int'l, Inc. held that the California Supreme Court's 2018 decision in Dynamex Operations West v. Superior Court applied retroactively. Dynamex adopted the "ABC" test for independent contractor classification for claims arising under California's Wage Orders. For those claims, an employer must show that all three prongs of the ABC test are met to justify independent contractor status. For information on Dynamex's adoption of the ABC test, read our prior coverage here.
In Vazquez, the putative employer Jan-Pro claimed it was in the business of franchising rather than in the cleaning business. Jan-Pro contracted with "master franchisees" that, in turn, contracted with "unit franchisees" that performed the cleaning services. Neither Jan-Pro nor the master franchisees performed cleaning services. Gerardo Vazquez, a unit franchisee, sued Jan-Pro alleging he and other similarly situated unit franchisees were misclassified as independent contractors. The district court entered summary judgment against the workers in 2017, finding they were independent contractors under California law.
Dynamex was decided while the Vazquez case was on appeal. In response, the Ninth Circuit ordered the parties to brief Dynamex's effect on the merits of the case. Jan-Pro argued Dynamex should not be applied retroactively because the decision significantly changed the law that Jan-Pro had relied upon. The Ninth Circuit panel rejected this argument, finding, among other things, that the decision should apply retroactively because it did not change the law but rather clarified current law.
The panel remanded the case to decide the merits, but not before providing the district court with guidance as to "prong B" of the ABC test requiring independent contractors to perform work outside of the hiring entity's usual business. In dicta, the panel suggested that the unit franchisees did not meet prong B of the ABC test and performed work within Jan-Pro's usual business. This is significant because it suggests franchisors could be held liable for Wage Order claims brought by or against their franchisees. This decision may cause confusion for California franchisors because it seems to conflict with what a California appellate court recently found in another post-Dynamex case, Curry v. Equilon Enterprises, LLC. In Curry, the court—in examining prong B of the ABC test—found that Shell was not in the business of owning gas stations, but rather in the business of owning fuel and real estate. Notably, Curry is distinguishable because, in that case, the parties stipulated that the agreement between Shell and the entities that ran Shell's service stations was not a franchise agreement. Moreover, the focus of Curry's discussion of Dynamex was whether Dynamex should be applied at all in the joint employer context. Despite these differences, these opinions seem to create conflicting authority for franchisors seeking guidance.
In the meantime, franchisors should examine their business operations and consider how Vazquez and the ABC test may impact classification of workers as independent contractors.
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.