California High Court Makes Landmark Independent Contractor Ruling Retroactive

The California Supreme Court found its landmark worker classification test from Dynamex Operations West, Inc. v. Superior Court of Los Angeles should be applied to any unresolved case prior to 2018.

The California Supreme Court building in San Francisco. (Courthouse News photo / Maria Dinzeo)

SAN FRANCISCO (CN) — The California Supreme Court declared Thursday that worker classification standards set forth in its Dynamex decision should apply retroactively to a labor class action from 15 years ago, as well as all non-final cases that predate the 2018 landmark ruling.

Dynamex Operations West, Inc. v. Superior Court of Los Angeles established a three-part test for when employers can classify workers as independent contractors. They must show A) the hiring entity does not directly control the worker, B) the work falls outside the hiring entity’s usual course of business, and C) the worker is “customarily engaged in an independently established trade occupation, or business of the same nature as the work performed.” 

The court also held that this standard, codified into California law with the passage of Assembly Bill 5 in 2019, is consistent with the meaning of “employ” as to “suffer or permit to work” as defined by California wage orders.

In 2019, the Ninth Circuit overturned a 2017 ruling in which U.S. District Judge William Alsup sided with the cleaning business franchisor Jan-Pro. The panel found Alsup applied the employment relationship as defined in Martinez v. Combs, which the California Supreme Court decided eight years before Dynamex. 

The Martinez case turned on whether seasonal farm laborers could be considered employees of business entities instead of their most immediate employer. 

But the appellate court set aside its ruling to ask the California Supreme Court to settle the question of whether the ABC test in Dynamex could apply to janitors who sued Jan-Pro in 2006. 

On Thursday, the high court held that it does.

“Given the constraints imposed by the statute of limitations, the retroactive application of Dynamex will in practice affect a limited number of cases. Nonetheless, in light of the general rule of retroactivity of judicial decisions and the fundamental importance of the protections afforded by the wage orders, we find no compelling justification for denying workers included in such lawsuits the benefit of the standard set forth in Dynamex,” Chief Justice Tani Cantil-Sakauye wrote for the unanimous court.

She said that while Martinez left open the question of whether the farmworkers were properly considered employees or, instead, independent contractors in the wage order context, it put employers on notice that the issue could come up in a future case.

Even so, Jan-Pro argued it reasonably relied on legal decisions prior to Dynamex, particularly the 11-factor classification test set forth in S.G. Borello & Sons v. Dept. of Industrial Relations.

But Cantil-Sakauye wrote the narrower test adopted in Dynamex “was not beyond the bounds of what employers could reasonably have expected” since it drew on some of the factors outlined by Borello.

“We reject the contention that litigants must have foresight of the exact rule that a court ultimately adopts in order for it to have retroactive effect,” she wrote. “And indeed, the ABC test articulated in Dynamex was within the scope of what employers reasonably could have foreseen. Prior decisions of this court had certainly provided putative employers notice concerning the potential breadth of the suffer or permit to work language.”

Shannon Liss-Riordan, an employment attorney representing the janitors, said she was pleased with the court’s decision and expected the janitors would be declared employees under the Dynamex test.

“The court reaffirmed the strength of the ABC test adopted in Dynamex. It also reminded us all that the test was necessary because the multifactor test in Borello had led to inconsistent outcomes that did not give workers and employers sufficient guidance to know their rights and responsibilities,” Liss-Riordan said in an email Thursday. “The court emphasized the importance of a strong legal standard to prevent independent contractor misclassification, in order to ensure that workers receive the protections to which they are entitled as employees.”

She added, “This decision should be a big help to workers across California who are continuing to litigate misclassification wage violations that occurred before April 2018.”

With the retroactivity question settled, Liss-Riordan said the case will now go back to Alsup.

“We expect that, in light of this ruling and the ruling of the Ninth Circuit, the janitors should be declared employees,” she said.

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