The California Supreme Court’s decision in Dynamex Operations West v. Superior Court significantly altered the legal landscape for companies that classify workers as independent contracts. In Dynamex, the Court held that – in determining whether a worker should be classified as an employee or independent contract under the California Wage Orders – a three-part test should be applied (the "ABC Test"). Under that test, the initial burden is on the employer to show that a worker is an independent contractor, rather than an employee, by establishing each of the following:
(A) The person 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.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
The Court’s 2018 decision in Dynamex was eventually codified in Labor Code § 2750.3, which also carved out numerous exceptions to the rule. However, until now, the Court left open of whether Dynamex applies retroactively.
Ninth Circuit Court of Appeals certified the question of retroactivity to the California Supreme Court – which, on January 14, 2021, held that that Dynamex does, in fact, apply retroactively. Vazquez v. Jan-Pro Franchising Intl. Inc. 10 Cal.5th, 944 (2021). In Vazquez, Janitors who purchased unit franchises from master franchisors filed a putative class action alleging that the janitorial cleaning business that entered into franchise agreements with master franchisors used its multi-leveled franchise model to misclassify them as independent contractors, rather than employees - and thereby avoided paying them minimum wages and overtime compensation. The Court, primarily relying upon the fact that Dynamex addressed an issue of first impression and did not change a settled rule upon which the parties had relied, held that retroactivity applied:
“The Dynamex decision constitutes an authoritative judicial interpretation of language — suffer or permit to work — that has long been included in California's wage orders to define the scope of the employment relationships governed by the wage orders. Thus, under well-established jurisprudential principles, our interpretation of that language in Dynamex applies retroactively to all cases not yet final that were governed by wage orders containing that definition. As the United States Supreme Court observed in Rivers v. Roadway Express, Inc. (1994) 511 U.S. 298, 312–313 : ‘A judicial construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction.’ In McClung v. Employment Development Dept. (2004) 34 Cal.4th 467, 474, this court…observed: “This is why a judicial decision [interpreting a legislative measure] generally applies retroactively.” (See Woosley v. State of California (1992) 3 Cal.4th 758, 794, ‘Whenever a decision undertakes to vindicate the original meaning of an enactment, putting into effect the policy intended from its inception, retroactive application is essential to accomplish that aim’”.
The Court also concluded that public policy and fairness concerns, such as protecting workers and benefitting businesses that comply with the wage order obligations, favored retroactive application of Dynamex.