California Supreme Court Rules Dynamex Decision Applies Retroactively

27 January 2021 Legal News: Distribution & Franchise Publication
Authors: Peter Loh

The California Supreme Court has followed up on its groundbreaking decision in Dynamex Operations West Inc. v. Superior Court, 4 Cal.5th 903 (2018), which imposed the so-called “ABC Test” for determining whether a worker is an employee or an independent contractor. In Vazquez v. Jan-Pro Franchising International, S258191, the Court has ruled the ABC Test’s application applies retroactively to employee misclassification cases pending at the time of the Dynamex decision.

First, a reminder about the significance of the Dynamex is helpful. Dynamex imposed the ABC Test on questions of worker classification by holding that a worker is an independent contractor — and not an employee — if, and only if, the alleged employer establishes that the worker:

(A) is free from the control and direction of the alleged employer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

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

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

Vazquez has reaffirmed the application of the ABC Test to worker classification cases not yet finalized at the time the Court issued the Dynamex decision. The Court saw “. . . no reason to depart from the general rule that judicial decisions are given retroactive effect.”

In doing so, the Court dispatched the defendant Jan-Pro’s arguments against retroactive application. The Court rejected the notion that retroactive application would unfairly set aside its 1989 holding in S.G. Borello & Sons v. Department of Industrial Relations. Dynamex, according to the Court in Vazquez, held that Borello did not rule on how the “suffer or permit to work” definition found in California industrial wage orders should be applied to distinguish employees from independent contractors for purposes of those wage orders. Thus, Dynamex did not change any settled rule. The Court further observed that the ABC Test, in fact, drew on the Borello factors and, thus, was within the scope of what employers could reasonably have expected.

Takeaways

The ABC Test in California is the prevailing standard for determining questions of worker classification. The California Supreme Court’s rulings in Dynamex, and now Vazquez, and the legislature’s codification of the ABC Test in AB 5 (and more recently AB 2257) should forewarn any alleged employer that it will not find favor in these kinds of cases.

Notably, Vazquez sidestepped how the ABC Test should apply in the context of a franchisor-franchisee relationship. In a footnote, the Court distinguished the issues decided in Patterson v. Domino’s Pizza LLC, 60 Cal. 4th 474 (2019) from Vazquez and noted the question in Patterson was that of the propriety of imposing vicarious liability on a franchisor for a franchisee’s wrongdoing, and not what standard should apply in determining the classification of workers as employees or independent contractors. Perhaps future decisions will tackle this issue and provide more clarity for franchisors on the application of the ABC Test in their relationships with franchisees.

Authors

Related Services