Answering a question certified by the Ninth Circuit, the California Supreme Court held Thursday that its landmark decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 applies retroactively, subjecting California employers to what could potentially be years of liability for improperly classifying workers under a test that didn’t yet govern in the state.
“Particularly because we had not previously issued a definitive ruling on the issue addressed in Dynamex, we see no reason to depart from the general rule that judicial decisions are given retroactive effect,” Chief Justice Tani Cantil-Sakauye wrote for the unanimous court. “Moreover, public policy and fairness concerns, such as protecting workers and benefitting businesses that comply with the wage order obligations, favor retroactive application of Dynamex.”
In Dynamex, the Supreme Court set out what’s known as the “ABC test” for determining whether a worker is an employee or an independent contractor, making it much harder for gig companies to classify their workers as independent contractors not entitled to traditional employment benefits like minimum wage and reimbursement for expenses.
Under that test, a worker is only an independent contractor if (a) the worker is free from the hiring entity’s control in connection with the performance of the work, (b) the worker performs work that is outside the usual course of the hiring entity’s business, and (c) the worker is customarily engaged in an independently established business of the same nature as the work performed for the hiring entity.
Previously, California courts had determined independent contractor status using the standard established in S.G. Borello & Sons Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, consisting of five disjunctive factors including the worker’s opportunity for profit or loss and the working relationship’s degree of permanence.
In 2019, the Ninth Circuit held in Vazquez v. Jan-Pro Franchising International, Inc. (9th Cir. 2019) 923 F.3d 575 that Dynamex applied retroactively, but it later withdrew that finding and instead certified the question to the California Supreme Court.
Jan-Pro, a company that licenses to franchisees a system for marketing cleaning services, told the Supreme Court that there should be an exception to the general retroactivity principle for Dynamex because businesses couldn’t reasonably have considered that the ABC test would govern at the time they classified their workers as independent contractors rather than employees.
The California Supreme Court rejected that argument, holding that in light of two prior cases employers “were clearly on notice” well before Dynamex that “a worker’s status as an employee or independent contractor might well depend on the suffer or permit to work prong of an applicable wage order — and that the law was not settled in this area.”
The court also held that the three factors of the ABC test are “prominent factors already listed in Borello,” and that because Dynamex did not change a previously settled rule, “any reliance by the parties on the previous state of the law is not particularly persuasive in our retroactivity determination.”
In addition, the court reasoned, “because we have already applied our decision in Dynamex retroactively — to the Dynamex parties themselves — it would be unfair to withhold the benefit of that decision to other similarly situated litigants.”
Counsel for the parties could not be immediately reached for comment on the decision.
The case is Vazquez v. Jan-Pro Franchising International Inc., case number S258191, in the Supreme Court of California.
The California Legislature codified the ABC test in AB 5. Since that legislation took effect in 2020, gig companies have been fighting it in the courts, and last May California sued Uber and Lyft in state court, claiming they were misclassifying their drivers under the law.
Those companies were handed a major victory in November with the passage of Proposition 22, a $200 million ballot measure carving out app-based transportation and delivery workers from AB 5. The Service Employees International Union on Tuesday filed a petition in the California Supreme Court claiming the measure is unconstitutional.
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