California Supreme Court Holds Dynamex ABC Test Applies Retroactively         

Author: David Kahn

Guest Editor: Grace Shuman

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March 11, 2022 4:58pm

 

The California Supreme Court issued an opinion regarding the highly contested “Dynamex ABC” test.  The court held in Vasquez v. Jan-Pro Franchising International, Inc.  the test in Dynamex applies retroactively when determining whether a worker should be classified as an employee or independent contractor for the purpose of wage and hour laws applies retroactively.

 

  1. The Dynamex Holding

In 2018, the California Supreme Court issued its holding in Dynamex v. Operations West, Inc. v. Superior Court.[i]  In Dynamex,  the Court was asked to interpret the definition of “employer” in California’s Wage Order statutes, which use the phrase “suffer or permit to work” in terms of classifying workers who to which the wage orders apply and independent contractors to whom the wage orders would not apply.[ii]  In doing so, the Court adopted what it commonly referred to as the “ABC test” for determining when a worker is an independent contractor and therefore exempt from wage and hour laws.  Under the ABC test, a worker is an independent contractor when the hiring party establishes (A) the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract and performance of such work in fact; (B) the worker performs work outside the usual course of the hiring party’s business; and (C) the worker is engaged in an independently established trade, occupation, or  business of the same nature at the work performed for the hiring entity.[iii]

 

  1. Retroactivity

In Vasquez, the Supreme Court was asked by the Ninth Circuit Court of Appeals to decide if the Dynamex holding applied retroactively, in other words, to pending wage order cases which were initiated before the opinion was published.[iv]  The actual underlying dispute in Vasquez, which involved claims by a class action of janitors who alleged they were misclassified as independent contractors in a multi-level franchise scheme, was not addressed by the Supreme Court.[v]  The defendant, Jan-Pro-Franchising, argued it reasonably believed the issue of independent contractor classification would be based on the Supreme Court’s prior holding in S.G. Borello & Sons v. Dept. of Industrial Relations, and therefore, it would be unfair and a denial of due process to retroactively apply the ABC test to its franchise agreements.[vi]

The Supreme Court applied the general rule favoring retroactivity and rejected Jan-Pro’s argument in favor of the limited exception.  The exception applies when considerations of fairness and public policy are so compelling in a particular case, that, they outweigh the policy considerations in favor of retroactivity.[vii]  Such a situation typically occurs when “’a judicial decision changes a settled rule on which the parties below have relied.’”[viii]  The Court opined California’s Wage Orders dating back more than a century have always contained the language “suffer or permit to work” as the definition of an employee.[ix]  Since the 1930’s, this language has been construed to offer the broadest possible coverage for a social welfare statute.[x]

The Court emphasizes the Dynamex decision settled an issue of first impression, pointing out that the Borello case did not involve Wage Orders; therefore, there was no pre-existing settled rule.[xi]  The Court pointed to pre-Dynamex decisions wherein the Court clearly stated the issue of classification based on the definition of employee in the Wage Order statues remains unsettled.[xii]  Thus, the Court found Jan-Pro’s claim of detrimental reliance on Borello disingenuous when employers were “clearly on notice well before the Dynamex decision” that the law was unsettled as to the definition of an employee in the Wage Orders.[xiii]

The Court further argued the Borello standard, which called for the weighing of numerous factors on a case-by-case basis, was not a predictable determinator upon which reasonable expectations could be based, which is precisely why the Court adopted the ABC test for Wage Order classification.[xiv]  The Court also noted supposed employers had been given prior notice concerning the potential breadth of the “suffer or permit to work” language in prior cases.[xv]   Finally, the Court found the policy considerations informing the Dynamex decision, namely enabling workers “to provide at least minimally for themselves and their families and to accord them a modicum of dignity and self-respect,” favors retroactive application.[xvi]

 

  1. Takeaway

Employers with pending wage and hour cases which were filed before the Dynamex decision should be prepared for application of the ABC standard to their case and act accordingly.  Even though the Borello standard may still apply to disputes not directly involving the Wage Order statues, hirers of independent contractors should still seek legal counsel to determine if the ABC test applies to their situation given the number of statutory exemptions.  If a worker does not qualify for one of the exemptions, the hirer should consult with legal counsel to see if the independent contractor classification meets the more rigid ABC test so as to avoid potential wage and hour exposure.

 

 

 

 


[i] 4 Cal. 5th 903

[ii] Ibid.

[iii] Ibid.

[iv] Vasquez v. Jan-Pro Franchising International, Inc. (2021) 10 Cal. 5th 944

[v] Vasquez, 10 Cal. 5th at 958, fn. 1

[vi] Id. at 948, citing S.G. Borello & Sons v. Dept. of Industrial Relations (1989) 48 Cal.3d 341

[vii] Id. at 952-953, citing Newman v. Emerson Radio Corp. (1989) 48 Cal. 3d 973, 983

[viii] Id. at 953 citing Claxton v. Waters (2004) 34 Cal. 4th 367 at 378

[ix] Ibid.

[x] Ibid.

[xi] Id. at 954

[xii] Ibid., citing Martinez v. Combs (2010) 49 Cal. 4th 35, 73 and Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal. 4th 522, 531

[xiii]Id. at 955

[xiv] Ibid.

[xv] Id. at 956 citing Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 585 and Martinez, supra.

[xvi] Ibid., citing Dynamex, supra at 952

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