Alerts

Ninth Circuit Ruling Means California's Dynamex Independent Contractor Test Must Now Be Applied Retroactively Before April 30, 2018

Alerts / May 7, 2019

On May 2, the Ninth Circuit expanded the application of the “ABC” test, adopted by the Supreme Court of California in Dynamex Ops. W. Inc. v. Superior Court.[1] In Dynamex, the Supreme Court held that the ABC test should be used to determine whether workers are considered employees or independent contractors under California wage orders, effectively limiting a hiring entity’s ability to engage the services of independent contractors.[2] The new Ninth Circuit decision holds that the ABC test must be applied retroactively, even to cases that pre-date the California Supreme Court’s Dynamex opinion.

The ABC test requires that the hiring entity prove three elements to establish that a worker is an independent contractor: (A) that the worker is free from the control of the hiring entity in connection with work performance; (B) that the worker performs work outside the hiring entity’s usual business; and (C) that the worker is customarily engaged in an independent business of the same nature as the work performed. If all three prongs of the test are not met, the worker is an employee under California’s wage orders, which means that the state’s minimum wage, overtime, meal and rest periods, and other wage payment requirements apply.

Specifically, the Ninth Circuit ruled that (1) retroactive application of Dynamex is called for by California law[3]; (2) applying Dynamex retroactively is consistent with due process[4]; and (3) Dynamex expanded the definition of “suffer or permit” for California wage order cases.[5]

In reaching this decision, the Ninth Circuit noted that under California law, “it is basic in our legal tradition that judicial decisions are given retroactive effect.”[6] Thus, the Court reasoned that there is a strong presumption of retroactivity in the application of Dynamex and its ABC test, given that (1) the Supreme Court of California denied a petition by an amicus to modify its Dynamex opinion for clarification and (2) lower courts have already begun applying Dynamex retroactively.[7] Additionally, the Ninth Circuit was not persuaded by arguments that retroactive application of Dynamex would violate due process rights by retroactively exposing entities to civil liability.

The Ninth Circuit also held that the Dynamex analysis should not be altered in its application to the franchise industry.[8] In short, the Court held that the ABC test should apply to both franchisee and franchisor.[9]

What this means for California hiring entities:

The ABC test for determining whether a worker is an employee or independent contractor under California’s wage orders will be used to analyze claims that predate the April 2018 Dynamex decision. This means that businesses may be held liable for failing to meet the ABC test before April 2018, even though the ABC test did not yet exist.

Authorship Credit: Monique Matar and Todd H. Lebowitz


[1] See Vazquez v. Jan-Pro Franchising Int’l, No. 17-16096 (9th Cir. May 2, 2019).
[2] Although Vazquez is not binding law on cases filed in California Superior Court, it is binding in all cases brought before any California U.S. District Court and is persuasive before all California Court of Appeals and Superior Courts.
[3] Id. at 26.
[4] Id. at 26-29.
[5] Id. at 36.
[6] Id. at 22.
[7] Id. at 26.
[8] Id. at 40.
[9] Velazquez involved a janitorial franchise, in which Defendant-Appellee Jan-Pro Franchising International created a “three-tier” franchise model that Plaintiffs-Appellants allege was used to avoid paying its custodians minimum wages and overtime by misclassifying them as independent contractors. The Ninth Circuit has instructed the District Court to apply the ABC test on remand and has encouraged the court to look to cases in other jurisdictions, in which at least one case has found a franchisor to be an employer. Id. at 40. Thus, a decision on the merits of this issue is still forthcoming.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

Blog

In The Blogs

Previous Next
Employment Class Action Blog
Ohio Federal Court Rejects Attempt to Certify Class Against Third-Party Plan Administrator Under ERISA § 502(a)(3)
May 23, 2019
Employee Retirement Income Security Act (ERISA) claims can potentially involve significant amounts in controversy, and in an effort to broaden the pool of potential defendants, ERISA plaintiffs are often fond of arguing that the Supreme...
Read More ->
Employment Class Action Blog
Recent Decisions Don't Provide Useful Guidance on Tests for the FAA Exemption of Transportation Workers
By John B. Lewis
April 29, 2019
Sometimes being right is not a virtue, especially when it comes to the Federal Arbitration Act § 1 exemption. We predicted uncertainty after the New Prime v. Oliveira decision and got it. See our Jan. 17, 2019, blog post on the exemption...
Read More ->
Employment Class Action Blog
SCOTUS Reverses Ninth Circuit on Proper Bases for Class Arbitrations
By John B. Lewis
April 25, 2019
The U.S. Supreme Court, in a 5-4 decision, ruled that arbitration agreements must provide a “contractual basis for concluding that the part[ies] agreed to [class arbitration].” Reversing the Ninth Circuit, Chief Justice John Roberts found...
Read More ->
Employment Class Action Blog
Illinois District Court Decertifies Equal Pay Act Collective Class Involving Physicians
By Gregory V. Mersol
April 24, 2019
Section 16(b) of the Fair Labor Standards Act (FLSA) is the provision that requires those participating in a federal claim for minimum wages or overtime to opt in to the class, making Rule 23 inapplicable. The same enforcement applies to...
Read More ->
Employment Class Action Blog
Missouri District Court Decertifies FLSA Class of IT Workers
By Gregory V. Mersol
April 23, 2019
We’ve noted before that while conditional certification motions are often granted, such classes fare far less well at the second decertification stage and just as poorly on the eve of trial. See: “Ninth Circuit Affirms Decertification of...
Read More ->