Is Dynamex Ruling Retroactive?

Santa Clara, CAJust as the polls closed on Proposition 22—a ruling that allows companies to hire app-based drivers as independent contractors instead of employees—the California Supreme Court heard arguments in Vazquez v. Jan-Pro Franchising Int’l, Inc. At issue is the Dynamex ruling and whether it should be retroactive to worker misclassification lawsuits filed before it was decided.

More than a decade ago, a group of janitors filed a misclassification lawsuit, alleging that they were incorrectly classified as contractors under a three-tiered franchising model. In 2019, the U.S. Court of Appeals for the Ninth Circuit held that the ABC test applied retroactively in the Vazquez lawsuit.

The janitors purchase a franchise from Jan-Pro Franchising International and either hire workers or perform the work themselves. Because they aren’t classified as employees, they don’t receive benefits such as health insurance, minimum wage, and overtime pay.

The majority of janitorial workers in California are Latinx and immigrants working for low pay, in hazardous conditions, and in an industry where wage theft and other illegal conduct is endemic. “These types of misclassification schemes further degrade workplace standards in the janitorial industry and impose obstacles to employer accountability for labor violations,” Laura Padin, senior staff attorney with the National Employment Law Project told Bloomberg Law.

The janitors’ attorney, Shannon Liss-Riordan, told the justices that retroactive application was appropriate because the Dynamex ruling laid down a classification test that built on earlier rulings, rather than assembling a new standard out of whole cloth. According to Law360, Liss-Riordan said the Dynamex decision “was this court's decision in the evolution of the very important question about what standard should apply to determine when workers should be properly classified as employees and when they can be classified as independent contractors.”

Dynamex ABC Test

In 2018, stemming from the  Dynamex Operations West, Inc. lawsuit, the California Supreme Court adopted the “ABC Test” for determining whether an individual is an employee or independent contractor under the state Industrial Welfare Commission Wage Orders. While this decision changed the standards in California for the classification of workers as independent contractors, it didn’t go so far as to address whether the decision would apply retroactively to independent contractor classification decisions made prior to the case being decided.

The ABC test requires a company to clear three hurdles to determine workers as independent contractors and disprove employment status:

• that the worker is free from the control of the hiring entity in connection with work performance – both under the performance contract and in fact;
• that the worker performs work outside the hiring entity’s usual business;
• that the worker is customarily engaged in an independent business of the same nature as the work performed.

Under the Dynamex ABC test, a worker is an employee unless a company can show that the individual operates without its supervision, performs works outside its usual line of business, and functions as an independent venture. Before Dynamex, a state test called Borello, which wasn’t so cut-and-dried as the ABC test, evaluated multiple factors to determine whether an individual was an independent contractor. However, not all of the factors had to be met to establish independent contractor status. Rather,  the main factor of the Borello test was whether the “person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”

While AB 5 specifically states that certain aspects of the law apply retroactively, the decision in Vasquez could affect the retroactive application of AB 5 as well, reported the National Law Review (October 26).  

Attorney Jason Wilson, representing Jan-Pro, argued that the Dynamex ABC test should not apply retroactively because it was a dramatic shift in the worker classification rules. "It's a sea change in the law," Wilson told Law360. "It's completely different than Borello, [that had ] a multifactor test. It emphasized control more than anything else [and] had a number of secondary factors." Theane Evangelis of Gibson, Dunn & Crutcher, who previously represented Jan-Pro, told Bloomberg Law when the case was certified to the state high court that the company looks forward to “consideration of these important issues, which will have a broad impact on businesses throughout California.”

The U.S. Chamber of Commerce and other business groups fear that interpreting the ABC test to reach back before the 2018 Dynamex decision would make employers liable for a host of costs associated with classification issues, such as years of back wages. That could mean a flood of lawsuits from workers dating back years before the ruling.

The case Vazquez v. Jan-Pro Franchising Int’l, Cal., No. S258191, oral argument 11/3/20.