As this newsletter has discussed before, last year, the California Supreme Court changed the way employers can identify their workers. In Dynamex v. Superior Court, the California Supreme Court radically altered the test that applies to determine whether a worker must be classified as an independent contractor or employee for the purpose of California’s wage orders. In May 2019, the federal Ninth Circuit Court of Appeals decided in Vazquez v. Jan-Pro Franchising that the Dynamex decision applies retroactively – meaning employers can be held liable for misclassifying its workers before the more stringent Dynamex standard even existed.

As a reminder, in Dynamex, the California Supreme Court set forth a much stricter “ABC” test to determine whether a worker is properly classified as an independent contractor, and therefore, exempt from California’s wage orders. Now, all workers are presumed to be employees unless the employer establishes each of the following three factors:

  1. The worker is free from the control and direction of the hiring entity;
  2. The worker performs work outside the usual course of the employer’s business; and
  3. The worker is customarily engaged in an independently established trade or business the same nature as the work performed for the company.

The California Supreme Court did not address whether the “ABC” test applied retroactively, or only applied to new cases going forward. After the Dynamex decision was issued, several lower California state courts applied the test and held that it did apply retroactively.

Cue the Ninth Circuit’s Vazquez decision. In Vazquez, the Court of Appeals was asked to determine if California law required the “ABC” test to apply retroactively – meaning the test would be applied to workers and cases that took place before the “ABC” test even came into existence. Vazquez involved a janitorial company who was sued by its workers because they were classified as independent contractors and sought damages based on minimum wage and overtime claims. The case was thrown out by the lower court, but on appeal, the Ninth Circuit held that California only clarified existing law, and without any indication that the “ABC” test should only be applied in the future, the “ABC” test applied retroactively.

The effect of this decision in the case was to revive the workers’ employment claims, but its effect could be far-reaching for all California employers. Under this decision, employers who classify independent contractors (or have used independent contractors in the last few years) could potentially face claims from workers who now claim that they were improperly classified as independent contractors – even if several years have passed. It remains to be seen how this decision will be applied going forward, but it is a good reminder for all employers to examine their classification of their workers and think about how to minimize potential risk arising from misclassification going forward.

Please contact Andrew Cummings at [email protected] or (949) 975-7500 if you have any questions about any issue discussed in this article, or any other related matter