California’s Top Court Takes Dynamex Retroactivity Question (1)

The California Supreme Court is poised to decide whether the test it created making it harder for employers to classify workers as contractors should apply retroactively, potentially setting up companies for wider liability under the new rigid standard.

The U.S. Court of Appeals for the Ninth Circuit asked the state high court to clarify its 2018 decision in Dynamex Operations West, Inc. v. Superior Court, which created the test that has roiled employers in the state that rely on contractors, as opposed to employees. The state high court agreed Nov. 21 to take up the question and will settle the open question.

The so-called “ABC” test requires companies to meet three specific criteria in order to label workers as contractors. Companies must show the workers have freedom from control over how to perform the services provided; that the services are outside the business’ normal variety or work; and that the workers are engaged in an independently established role.

The test was codified into California law this year with legislation known as Assembly Bill 5. That measure will take effect in January 2020. The law aims to ensure that more workers have the rights of employees, who are guaranteed minimum wage, overtime, and other benefits that aren’t afforded to contractors.

The California high court’s decision on retroactivity will have broad reach and apply the legal test not just to cases going forward, but also to disputes dating back to before the new test was enacted. If the court rules that it’s retroactive, employers could be on the hook for classification disputes initiated years ago. Already the test has vexed the employment community in California, including gig economy companies like Uber Technologies Inc. and Lyft Inc. that rely on contractors for the bulk of its workforce. Franchises also fear the legal test could hurt major employers.

In May, the Ninth Circuit determined in Vazquez v. Jan-Pro Franchising International Inc. that the ABC test applied retroactively. Jan-Pro Franchising International, a commercial cleaning franchiser, and other businesses urged the federal appeals court to reconsider the opinion. Instead, it certified the question to the California high court on Sept. 26.

Jan-Pro attorney Theane Evangelis, with Gibson, Dunn & Crutcher, said in a statement to Bloomberg Law, “We look forward to the Supreme Court’s consideration of these important issues, which will have a broad impact on businesses throughout California.”

The underlying case has been ongoing for more than a decade, when a group of janitors sued JanPro and argued they were incorrectly classified as contractors. Their attorney, Shannon Liss-Riordan, said she “looks forward to having this issue conclusively decided at last.”

“Every court to have addressed the issue to date has agreed that it is retroactive,” Liss-Riordan told Bloomberg Law. She said she also asked the California Supreme Court to take up additional questions raised in the case, including whether the 2018 Dynamex decision applies in the franchise context and whether it applies to joint employment.

O’Hagan Meyer PLLC and Gibson, Dunn & Crutcher LLP represent Jan-Pro Franchising International.

The case is Vazquez v. Jan-Pro Franchising Int’l, Cal., No. S258191, certification granted 11/20/19.