Introduction: For a little over a year, California employers and courts have been wrestling with the impact of Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018), which dramatically altered the independent contractor landscape in the Golden State last year. Dynamex upended a long-standing multi-factor test which had been applied to determine if a worker was an employee or an independent contractor, ushering in the new “ABC test.” One of the main unresolved questions left in the wake of Dynamex was whether the new “ABC test” applies retroactively.
On October 8, 2019, the Court of Appeals for California’s Second Appellate District in Gonzales v. San Gabriel Transit, Inc., et al., concluded that the “ABC test adopted in Dynamex is retroactively applicable to pending litigation” asserting wage order violations and Labor Code violations based on wage orders and remanded the case back to the lower court to evaluate which of the wage and hour claims were subject to retroactive application. The California Court of Appeals concluded the “ABC test” applies to Labor Code claims which are either “rooted in one or more wage orders, or predicated on conduct alleged in one or more wage orders.” As for other Labor Code claims, the Gonzales court found that the long-standing Borello test, which looks to multiple factors to answer a principle question of whether the person receiving a service has a right to “control the manner and means” of completing service, remains appropriate.
Background on Dynamex: In Dynamex, the California Supreme Court was asked to determine which standards applied when evaluating whether an individual was an employee or independent contractor. Under the new test, known as the “ABC test,” independent contractors were considered employees unless an employer established 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.
Dynamex did not establish a new standard or law but merely articulated the applicable standard that California courts are required to utilize to determine whether a worker qualified as an employee or independent contractor. Dynamex, however, did not address whether its ruling will apply retroactively to older claims or prospectively. (click here for a full discussion of Dynamex).
Impact of the Gonzales Decision: Prior to Gonzales, only one California Appellate Court decision (Garcia v. Border Transportation Group, LLC, 28 Cal.App.5th 558 (2018)) addressed retroactive application of Dynamex. However, in Garcia, the California Court of Appeal did not tackle the issue in broad terms. Rather, the court applied Dynamex retroactively, but did so as to the case only because the defendant, which bore the burden, never raised the issue.
The U.S. Court of Appeals for the Ninth Circuit in Vasquez v. Jan-Pro Franchising International, Inc., also initially ruled that the Dynamex decision applies retroactively. (click here for full discussion of Vasquez). However, the Ninth Circuit later withdrew this decision and, instead, certified the question of the retroactivity of Dynamex to the California Supreme Court, in which the issue is now pending.
In the interim, the California legislature passed A.B. 5, which suggests that Dynamex may, in certain circumstances, have retroactive application.
As a result of the Gonzales decision, employers that may have not used the proper legal standard for classification of independent contractors prior to Dynamex may have some exposure. However, the Gonzales decision may be short-lived if the California Supreme Court or other California courts chime in on this issue, which is expected. However, before the California Supreme Court provides an opinion on retroactive application of Dynamex, the Gonzales decision may be binding authority.
Furthermore, with new legislation (A.B. 5) codifying Dynamex and expanding the application of the “ABC test” beyond just Wage Orders, employers that use independent contractors are well advised and cautioned to consult counsel as to the impact of the new legislation and decisions on their workforces. (click here for a full discussion on A.B. 5).