Does the high court’s Dynamex decision apply retroactively?

THE NEUTRAL CORNER

In a prior column (June 26, 2018), I wrote about Holmgren v. County of Los Angeles, 159 Cal. App. 4th 593 (2008), a case that effectively renders the blockbuster California Supreme Court decision in Dynamex Operations West v. Superior Court, 4 Cal. 5th 903 (2018) (establishing new test for independent contractor status under Industrial Welfare Commission Wage Orders) irrelevant for people performing services for Los Angeles County as independent contractors who, under the new test, might be employees. This column examines one of the key questions left unanswered by the California Supreme Court in Dynamex: Does the new standard for evaluating independent contractor/employee issues apply retroactively?

In what is, apparently, the first widely disseminated ruling, one court has already answered this question with a resounding "yes." Judge William Claster of the Orange County Superior Court ruled in Johnson v. VCG-IS, LLC, 30-2015-00802813-CU-CR-CX (Cal. Super., July 18, 2018) that the new Dynamex "ABC" test should apply to this pending case in which exotic dancers working at Imperial Showgirls in Anaheim have been classified as independent contractors. The court quickly dispatched the employer's argument that Dynamex applied only to claims brought under the IWC Wage Orders not to Labor Code claims. The merits of the court's ruling on this issue are beyond the scope of this column except to note that the employer's argument appears to be based mostly on wishful thinking.

On the other hand, with all due respect to the court, the analysis of the retroactivity issue is skimpy and flawed. The court's bases for ruling the ABC test applies retroactively are: (1) the age of the claims in Dynamex (the case was filed in 2005); (2) the lack of a statement by the Supreme Court that the decision applied only prospectively; and (3) the Supreme Court's later decision to deny requests to modify the decision to state that the test should be applied only prospectively. Based on these facts and "in light of the general rule that judicial decisions are given retroactive effect, and because it is up to the Supreme Court to declare an exception to this rule," the superior court ruled the ABC test will apply to the claims of the exotic dancers. (Citations and internal quotations omitted.)

The court correctly identified the "general rule" that judicial decisions are given retroactive effect. Newman v. Emerson Radio Corp., 48 Cal. 3d 973, 978 (1989). In its next breath, however, the court in Newman recognized this rule "has not been an absolute one." The Newman court cited an early rationale for the retroactive application of decisions as follows: "A decision interpreting the law, therefore, does no more than declare what the law has always been." But Newman -- in which the California Supreme Court held the landmark decision in Foley v. Interactive Data Systems applied retroactively -- dealt with a tort claim. Foley held tort damages were not available for breach of the implied covenant of good faith and fair dealing in an employment contract. The plaintiffs in Newman argued against retroactivity because Foley took away emotional distress and punitive damages from what were then known by some as "garden-variety" wrongful termination claims (i.e., I had a job for a long time and got fired.) Dynamex involves a statutory claim.

This difference between a statutory claim and a tort claim is crucial. The Newman court, itself, makes the point when it chastises the dissent for citing only one case analysis that "has led to less than full retroactive application of a tort decision." That case, Moradi-Shalal v. Fireman's Fund, "involved reinterpretation of a statute we had previously held permitted private third-party causes of action" for violation of a statute. Thus, under the very California Supreme Court precedent cited in Johnson, courts are advised to analyze the retroactivity issue differently depending on whether the claims sound in tort or statute.

The Newman court acknowledges "in a few additional cases circumscribed retroactivity has been imposed because of unique burdens that would otherwise arise. These cases presented compelling and unusual circumstances justifying departure from the general rule." I submit that Dynamex involves similar circumstances.

One such circumstance is whether the decision at issue disturbed "long standing" law. Dynamex established a new test replacing one the California Supreme Court itself had devised in 1989 in Borello v. Dept. of Industrial Relations. The California Supreme Court acknowledged that the Borello "has come to be viewed as the seminal California decision on this subject." 4 Cal. 4th at 929. Whether or not the California Supreme Court would concede the ABC test is completely different than the one it established nearly 30 years ago, it is clearly perceived that way by practitioners writing articles like "California Announces a new Wage and Hour Independent Contractor Test," "California Rewrites the Independent Contractor Test," "California Supreme Court Changes Test for Independent Contractor." Put more directly, it could easily be argued that Dynamex established a "new rule of law." See id. at 995 (Broussard, J. dissenting).

Another factor warranting an exception to the general rule of retroactivity is whether such application would "undermine the reasonable reliance of parties on the previously existing state of the law." 48 Cal. 3d at 983. Although this reasonable reliance can be shown in a number of ways, the Dynamex court provides the most compelling when it notes: "in response to the continuing serious problem of worker misclassification as independent contractors, the California Legislature has acted to impose substantial civil penalties" for willful misclassification. It would hardly be fair for the state to impose penalties on employers who relied on the Borello test to determine whether their workers were properly classified.

Space constraints do not permit examination of this issue as fully as one would in a legal brief. Rather, the purpose is to point out that the issue of whether the Dynamex ABC test will be applied retroactively is a critical issue for California employers and workers alike. Instead of providing greater clarity, this decision will likely spawn more uncertainty (a test relied on for 30 years has been abrogated) and litigation. The decision not only affects companies that rely on independent contractors, but also workers who have personal reasons for performing services as an independent contractor. Given the importance of this issue, one would expect and hope that attorneys will provide judges with comprehensive, well-reasoned briefs. The importance of this warrants an analysis that offer more than a casual citation to the "general rule" and reliance on the fact that the case had been pending for a long time.