On October 14, 2019, the California Court of Appeal, Second District, Division 4, concluded in a class action case Gonzales v. San Gabriel Transit Inc. 2019 WL 4942213 that the California Supreme Court’s Dynamex Operations West Inc. v. Superior Court (2018) 4 Cal.5th 903, decision applies retroactively.
Recall that Dynamex embraced smaller states so-called “ABC” test to determine who is subject to California’s state wage order pronouncements (which govern working conditions ranging from minimum wage rates and maximum hours, to meal and work breaks), and by putting the burden on the hiring party (the employer) to make those showings, the California Supreme Court ceased to rely on S.G. Borello & Sons, Inc. v. Dept. of Indust. Rel. (1989) 48 Cal.3d 341, a decades-old, multi-factor test used to determine who qualifies for workers’ compensation protection, and joined a handful of other small states such as Massachusetts and New Jersey that have taken a similar approach for certain select purposes.
That is all that got decided in Dynamex. There is also no question that the new ABC test embraced in Dynamex only applies to California’s wage order rules and not for other purposes – not even for purposes of California’s workers’ compensation laws – which still remain subject to the multi-factor test adopted in Borello.
In another case, Vazquez v. Jan-Pro Franchising Int’l Inc., (9th Cir 2019) 923 F.3d 575, the Ninth Circuit Court of Appeals previously found the Dynamex decision applies retroactively, but subsequently withdrew that opinion in Vazquez v. Jan-Pro Franchising Int’l, Inc., No. 17-16096, 2019 WL 4648399 (9th Cir. Sept. 24, 2019) and certified the question to the California Supreme Court, where the request is now under consideration. It appears based on the Court of Appeal decision that employers who rely upon independent contractors may now be subject to potential exposure for wage and hour claims based on a legal standard that in practice did not exist prior to April 2018 for certain claims.
Based on this change in the applicable test, employers have argued that the new standard should only be applied prospectively [meaning from the date of the decision moving forward for those of us like me who like to write using simple to understand words and phrases].
In Gonzales v. San Gabriel Transit, Inc., 2019 WL 4942213, the California Court of Appeal concluded: (1) the ABC test articulated in Dynamex for determining whether a worker is an independent contractor or employee applies to California Labor Code claims which are either rooted in one or more wage orders, or predicated on conduct alleged to have violated a wage order, and (2) The Dynamex ABC test applies to equivalent or overlapping non-wage order allegations arising under the Labor Code. See Gonzales v. San Gabriel Transit, Inc., No. B282377, 2019 WL 4942213 (Cal. Ct. App. Oct. 8, 2019)
In the Gonzales case, a transportation driver brought a statewide class action on behalf of himself and other drivers, alleging that they were misclassified as independent contractors rather than employees. The issue on appeal was whether the claim was suitable for class certification. Although the transit company did not raise the issue on appeal [and thus the issue should have been waived], the court of appeal first considered whether the Dynamex rule applies retroactively. The court concluded that the Dynamex decision applied retroactively because it did not establish a new standard, but rather “merely clarified and streamlined” the prior standard which at first glace appears at odds with the decision itself since it seems to be based on a extension and modification of the ABC test from Massachusetts.
The significance of the retroactive application of the Dynamex standard is that employers now have potential exposure going back four years for potential misclassification of employees as independent contractors (four years is the maximum statute of limitations period for wage and hour claims if a Business & professions Code section 17200 et seq. claim is asserted). Had the rule been applied prospectively only, then exposure would start at the date of the Dynamex opinion, which came out in April 2018.
What is the significance of this ruling in light of AB-5, the law recently passed by the California Legislature codifying the Dynamex decision? AB-5 takes effect Jan. 1, 2020, and expands on the Dynamex decision, applying the test to all claims arising out of the California Labor Code, whereas the Dynamex decision has been interpreted by courts to only apply to claims arising out of the California Wage Orders. Therefore, from Dec. 31, 2019, and before, the Dynamex decision applies, but for Jan. 1, 2020, and on, AB-5 applies. This period of Dec. 31, 2019, and before provides significant risk for employers as they did not have any notice prior to the Dynamex decision that they were not applying the proper legal standard to classification of independent contractors.
In Vazquez, the Ninth Circuit Court of Appeals has asked the California Supreme Court to decide whether the Dynamex decision applies retroactively. The California Supreme Court will now likely be asked to review the Gonzales decision as well. The California Supreme Court will hopefully decide whether to hear the issue in the next few months. If the California Supreme Court decides to review Vazquez, then it will likely take the Gonzales decision under review as well. But even if the California Supreme Court grants review of Gonzales, Gonzales will constitute binding authority in California unless the California Supreme Court orders otherwise.
Until and unless the California Supreme Court concludes otherwise, employers are on notice they may be subject to retroactive exposure for misclassifying employees as independent contractors and should seek management side legal advice to address any concerns.
For employees and current independent contractors, if you have any questions about whether you have been classified paid properly or paid all minimum wages or asked to work off the clock or believe you have a claim against your employer for any violation of the California Labor Code, please feel free to contact: