Determining Independent Contractor Status

May 07, 2019

Know Your ABCs: Dynamex ABC Test Applies Retroactively
By Vanessa Willis, The Maloney Firm, APC

 
On May 2, 2019 in Vazquez v. Jan-Pro Franchising International, Inc. No. 17-16096 (9th Cir. 2019), the Ninth Circuit held that the landmark 2018 Dynamex decision applies retroactively. The Dynamex decision adopted the more stringent ABC test for determining independent contractor status. Under Dynamex, to establish that a worker is an independent contractor, the employer must prove that the worker: (a) is free from control and direction in the performance of his or her work, both under the contract for the performance of the 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 that he or she is performing for the hiring entity. Dynamex Corporations West, Inc v Superior Court (2018) 4 Cal. 5th 903, 916-917.
 
The Vazquez case involved a decade-long dispute between janitorial workers classified as independent contractors and Jan-Pro Franchising International. The court ruled that janitors working for a franchise-structured cleaning firm could not be classified as independent contractors and found that “franchise context” doesn’t change how Dynamex should apply.
 
The Ninth Circuit concluded that Dynamex applies retroactively largely because the Dynamex Court stated it was merely “clarifying” existing law rather than changing it, and remanded the case to the district court for further proceedings in which the new “ABC” test is to be applied retroactively. The Ninth Circuit rejected two main arguments for applying Dynamex only prospectively. First, the Court noted the default rule that judicial decisions have retroactive effect and Dynamex did not fall into any exception to that rule. Second, the Court held that applying Dynamex retroactively did not violate due process.
 
This opinion has major implications, especially for California employers that rely on independent contractors, including gig economy companies. The Ninth Circuit’s decision also has particularly important application to businesses that use a franchise model. Employers should not only make sure that new workers are classified correctly according to Dynamex, but also revisit existing independent contractor agreements to verify they conform to the standards established by Dynamex. As a result of this decision, employers may see an uptick in wage and hour lawsuits and businesses may be subject to liability for misclassifying workers as independent contractors even before the test became law.


< See all News & Events