Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Employers in the Golden State are well aware that last year in Dynamex v. Superior Court the California Supreme Court adopted the ABC test for determining whether workers are employees or independent contractors. In the most recent development in the Dynamex saga, the court will now decide whether the new test should be given retroactive, or only prospective, application.
On April 30, 2018, the California Supreme Court issued its unanimous decision in Dynamex, entirely redefining the standard for determining whether a worker is an employee or an independent contractor for purposes the California Wage Orders. At that time, California courts and state agencies had long applied the standard the court itself adopted in 1989, in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello). In Dynamex, the court replaced the Borello test with the “ABC test,” an entirely new and different test that was, until then, not a feature of California law.
Despite its stated intention to “clarify” the law, the court failed to address the critical issue of retroactive versus prospective application of the new test. The employer filed a petition for rehearing, asking the court to resolve this apparent oversight. The court denied the petition for rehearing. The court’s opinion became final as of June 20, 2018.
The court’s decision sparked a wave of litigation in which current and former independent contractors sought to impose the ABC test retroactively. This exposed thousands of businesses in California to potential liability for relying on the Borello test in classifying workers as independent contractors. Liability for misclassification could extend back as far as four years. If the decision is given retroactive effect, employers could be held to the ABC test for a period of several years before the California Supreme Court issued its opinion in Dynamex. In their endeavor to impose the more restrictive ABC test to that period, the plaintiffs and their counsel largely relied on the California Supreme Court’s description of the Dynamex opinion as clarifying rather than altering the law.
Earlier this year, on May 2, 2019, the U.S. Court of Appeal for the Ninth Circuit issued its opinion in Vazquez v. Jan-Pro Franchising Int'l, Inc. (Vazquez).1 The Ninth Circuit concluded Dynamex applies retroactively. In reaching its decision, the Ninth Circuit expressly relied on the California Supreme Court’s “emphasis in Dynamex” that its holding was “a clarification rather than as a departure from established law.”
The Ninth Circuit’s Recent Order
On July 22, 2019, however, the Ninth Circuit reversed course and issued a single-page order: (1) granting panel rehearing in Vazquez; (2) withdrawing the court’s previously-published opinion; and (3) declaring the court’s intention to file “[a] revised disposition and an order certifying to the California Supreme Court the question of whether [Dynamex] applies retroactively.”
The Ninth Circuit’s revised decision gives the California Supreme Court a second opportunity to address retroactive versus prospective application of its opinion in Dynamex. However, the Supreme Court may not act on this opportunity expeditiously.2 Until then, California businesses will have to look to the state’s trial courts, appellate courts, and legislature for relief. There are no cases addressing this issue currently before the state’s appellate courts.
Meanwhile, the California state legislature is debating Assembly Bill 5 (AB 5), which would expand the ABC test beyond the wage orders to include application to the labor and unemployment insurance codes.3 However, the current draft of AB 5 also does not address the key question of retroactivity, and based on comments made by legislators at the recent Senate Labor Committee hearing, the bill is far from complete.4
Many in the business community have expressed a multitude of concerns about AB 5, including but not limited to the question of retroactivity. When the legislature reconvenes on August 12, 2019, all eyes will be on this important piece of legislation, which could have a significant impact on the California economy.
1 Vazquez v. Jan-Pro Franchising Int'l, Inc., 2019 U.S. App. LEXIS 13237, 2019 WL 1945001 (9th Cir. May 2, 2019).
2 For example, in the matter of Stewart v. San Luis Ambulance, Inc. (No. S246255), the Ninth Circuit certified three questions to the California Supreme Court regarding rest breaks, meal periods, and derivative wage statement claims under sections 203 and 206 of the Labor Code. The Ninth Circuit filed the request on January 3, 2018. The case has been fully briefed before the California Supreme Court since January 8, 2019. The California Supreme Court has still not set a date for oral argument.
4 See Patrick Stokes, Bruce Sarchet, and Michael Lotito, California Legislature Moves Forward with Bill to Redefine Independent Contractor Relationships, Littler Insight (July 16, 2019).