Retroactive Dynamex Gives Misclassification Claims A Boost

Following a January 2021 decision that applied the state Supreme Court’s landmark Dynamex ruling retroactively, workers have gotten a boost in independent contractor misclassification lawsuits in California.

In Vazquez v. Jan-Pro Franchising International Inc., the justices said their April 2018 decision in Dynamex Operations West Inc. v. Superior Court applies retroactively, meaning that its classification test covered cases ongoing at the time. The general rule for California Supreme Court rulings is that their holdings apply retroactively, but some lower courts questioned whether that was the case for the Dynamex ABC test, because it was a major shift from prior case law.

In Dynamex, the state's highest court said claims under California's wage orders — rules that spell out minimum wage, overtime, rest and meal break, and similar requirements for specific industries and occupations — should be analyzed under a three-factor ABC test. It replaced a looser test, named for the court's 1989 decision in S.G. Borello & Sons v. Department of Industrial Relations, that considered 11 factors.

Dynamex is considered a harder test for a company to satisfy because it presumes employee status unless the firm can show a worker operates free from its control, engages in a distinct trade and functions as an independent business. An individual who meets all three prongs is an independent contractor and is not covered by the wage orders.

When the state justices said Dynamex applied retroactively, employment attorneys predicted that it would change the direction of ongoing litigation and could even bring out new claims from workers who had been hesitant to file under the older standard.

Looking back over the year since Vazquez was decided, lawyers now say its biggest impact in court has been on cases that were already underway.

Shannon Liss-Riordan, an attorney who specializes in litigating workers' misclassification claims, said the ruling was beneficial because it definitively told lower courts that cases pending at the time Dynamex was handed down should be considered under the ABC test.

"Its biggest impact is on cases that were already pending," said Liss-Riordan, who represents Gerardo Vazquez and other workers whose long-running misclassification claims are at issue in the case that bears her client's name.

Because the Dynamex case involved wage order claims, defendants argue that other claims should be evaluated under the Borello test, she said. But because the California legislature applied the ABC test to all employment claims when it passed Assembly Bill 5, any uncertainty about which classification standard to use ended when the law took effect in January 2020, she said.

Rachel Bien, an Olivier Schreiber & Chao LLP partner who represents workers, said Vazquez was beneficial because it brought an end to lawyers and tribunals wrestling with whether to apply Dynamex retroactively.

"In my experience there were some arbitrators and judges who found the retroactivity issue not straightforward," she said. "Having the clarity from the California Supreme Court that Dynamex was retroactive was extremely helpful."

She added that California often leads the rest of the country with worker protections. With the attention Dynamex, Vazquez and A.B. 5 have given misclassification, courts and lawmakers in other states have taken a look at their own employment laws, she said.

Andrew Grossman, a Paul Hastings LLP partner who represents employers, said California businesses already had been preparing for the likelihood that the state high court would follow its usual practice and apply Dynamex retroactively. Grossman is general counsel of the California Employment Law Council, an association of large employers that filed an amicus brief in the Vazquez case and said applying Dynamex retroactively would penalize firms that relied on Borello in the years when it was the controlling standard.

"Even though the ruling on Dynamex retroactivity didn't formally come until much later, everyone assumed it would be retroactive," Grossman said. "The California Supreme Court has very, very rarely made any of its decisions not retroactive."

Although the council argued for prospective application only, Grossman said employers were preparing for retroactive application.

"Properly advised employers assumed it was going to be retroactive," he said.

Cases Get Fresh Attention Following Vazquez

In the year since the Vazquez ruling, courts have leaned on it in their decisions 19 times, according to LexisNexis data. It's been cited by state and federal courts of all levels, including the California Supreme Court and superior and appeals courts, as well as the Ninth Circuit and federal district courts in the Golden State.

Applying Dynamex retroactively was a key factor in March, when a state appeals court said truck drivers for shipping container transportation firm East Coast Transport Inc. who lost their misclassification claims at trial should receive a fresh evaluation under Dynamex. The lower court conducted the November 2018 trial under the Borello test, reasoning that the alleged misclassification occurred before the Dynamex decision and that applying its ABC test would be an unfair surprise.

As the drivers' appeal made its way through the higher court, the Supreme Court decided Vazquez. As a result, the three-justice panel threw out the company's win in Parada v. East Coast Transport Inc. and sent the case to the lower court so it could apply the ABC test.

The question of whether to apply Dynamex's ABC test or Borello's fuzzy standard made a crucial difference in September for a group of newspaper carriers who said McClatchy Co. should have reimbursed their mileage for delivering the Fresno Bee.

In Becerra v. McClatchy Co., an appeals court said the preliminary question of whether the carriers were employees should be answered by applying the Borello test, rather than Dynamex, because the mileage reimbursement claim relied on the state labor code, a body of employment laws separate from wage orders. Although Dynamex established a new test for suits arising under wage orders, both Dynamex and Vazquez made clear that it did not change anything for labor code claims, the court said.

Because Dynamex applied retroactively, it gave some litigants who had lost under Borello a window in which to argue that the court should reopen their case and examine it under the new standard.

That's what happened to a former driver for GrubHub Inc. who lost claims for minimum wage, overtime and mileage reimbursement in a September 2017 trial under the Borello standard. Since then, he has sparred with the company in the district court and in the Ninth Circuit about whether he should get a redo under the Dynamex test.

In September, the Ninth Circuit ruled in the former driver's favor and said the lower court should apply Dynamex to the wage order claims and determine whether to apply it to the labor code claim. U.S. Magistrate Judge Jacqueline Scott Corley hasn't yet gone through a Dynamex analysis but has acknowledged that applying a different standard from what she used in the bench trial could produce a different outcome.

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