Ninth Circuit Concludes That New California “ABC” Independent Contractor Test Applies Retroactively

In April 2018, the California Supreme Court issued its long-awaited opinion in Dynamex Operations West, Inc. v. Superior Court, dramatically changing the standard for determining whether workers in California should be classified as employees or as independent contractors for purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”). In so doing, the Court held that there is a presumption that individuals are employees, and that an entity classifying an individual as an independent contractor bears the burden of establishing that such a classification is proper under the “ABC test” used in some other jurisdictions.

Specifically, the ”ABC” test requires the hiring entity to establish each of the following three factors:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Understandably, in response to Dynamex, many employers reviewed their practices relating to independent contractors to confirm whether they satisfied the new “ABC” test.

And, just as understandably, employers were concerned about whether Dynamex would apply retroactively.

The Ninth Circuit has now addressed that issue and has concluded that Dynamex in fact applies retroactively.

In Vazquez v. Jan-Pro Franchising International, Inc., the defendant – an international janitorial cleaning business -- was awarded summary judgment on minimum wage and overtime claims stemming from allegations that janitors had been misclassified as independent contractors as part of its “three-tier” franchising model.  The plaintiffs appealed, and the Dynamex decision was issued while the case was on appeal. The Ninth Circuit ordered the parties to brief the effect of that decision on the merits of the case.

The defendant devoted most of its supplemental briefing to arguing that Dynamex did not apply retroactively.  The Ninth Circuit disagreed, concluding that it in fact applies retroactively largely because the Dynamex Court stated it was merely “clarifying” existing law rather than departing from it, and remanded the case to the district court for further proceedings in which the new “ABC” test is to be applied retroactively.

Barring a dramatic development, such as a reversal by the United States Supreme Court, this decision should be of great concern to any entity that retained workers as independent contractors prior to Dynamex.  Those entities may now be exposed to litigation for failing to comply with an “ABC” test that they had no reason to believe they needed to comply with for the simple reason that it did not even exist.