GrubHub reclassification should be easy as ABC

Timing is everything. When a California district court ruled last February against GrubHub driver Raef Lawson's contention that he and other drivers were misclassified as independent contractors, the state Supreme Court was two months away from issuing its landmark ruling in Dynamex Operations West Inc. v. Superior Court, 2018 DJDAR 3856 (April 30, 2018).

Lawson was thus deprived of the right to seek minimum wage, expense reimbursements and overtime to which he would have been entitled as an employee. With his request for remand denied on appeal, he sought reconsideration, asking the court to issue an indicative ruling or "at the very least state that the application of Dynamex in this case raises a substantial issue."

That judicial decisions are to be given retroactive effect is a basic tenet of our legal tradition. New laws generally operate prospectively, but interpretation of existing law -- such as the Dynamex ruling -- applies retroactively. Thus, California Supreme Court opinions typically require lower courts to change previous rulings if they relied on an outdated rule interpretation. On appeal, the GrubHub court was legally obligated to consider Dynamex and other newly published case law that became available after entry of judgment in the trial court (see Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 23-24 (1995)).

In August, an Orange County Superior Court did just that, applying Dynamex retroactively to reclassify Imperial Showgirls dancers as employees based on the Dynamex ABC test (Oriana Johnson et al. v. VCG-IS LLC, 30-2015-00802813). In October, the 4th District Court of Appeal held that the Dynamex standard applied to claims under a wage order for unpaid wages, failure to pay minimum wage, failure to provide rest and meal breaks, failure to provide itemized wage statements, and related UCL claims: "Dynamex changed the appropriate standard for determining whether Garcia was an employee entitled to wage hour protection or an independent contractor who was not." Garcia v. Border Transportation Group LLP, 2018 DJDAR 10354 (Oct. 22, 2018).

The GrubHub retroactivity question is now in the hands of a federal court. In a 12-page order, U.S. Magistrate Judge Jacqueline Scott Corley acknowledged that there was in fact a substantial issue but punted retroactivity to the 9th U.S. Circuit Court of Appeals for a decision. Lawson v. GrubHub Inc., 18-15386. How that court rules could have significant ramifications for California businesses.

In reviewing issues of state law that have not been reconciled by the California Supreme Court, the federal court is required to predict the manner in which the state Supreme Court would rule. "Where the state high court has not decided the matter, the Court's task is to "predict" how the state high court would rule. 'In other words, the federal court must determine issues of state law as it believes the highest court of the state would determine them'." United Tactical Systems, LLC v. Real Action Paintball, Inc., 143 F.Supp.3d 892 (N.D. Cal. 2015).

It's a safe bet that the California Supreme Court would rule for Dynamex retroactivity. Between its generally pro-employee leanings and its reluctance to undermine its own decisions, there is little chance of another outcome. Although retroactivity is not guaranteed, the likelihood that an exception would be granted is about the same as winning the lottery. The court has stated that courts may decline to retroactively apply rules when doing so would unfairly undermine the reliance of parties on previously existing law, and when faced with compelling considerations of fairness and public policy:

"A court may decline to follow the standard rule when retroactive application of a decision would raise substantial concerns about the effects of the new rule on the general administration of justice, or would unfairly undermine the reasonable reliance of parties on the previously existing state of the law. In other words, courts have looked to the 'hardships' imposed on parties by full retroactivity, permitting an exception only when the circumstances of a case draw it apart from the usual run of cases." Newman v. Emerson Radio Corp., 48 Cal. 3d at 983 (1989).

GrubHub may be correct in arguing that Dynamex signifies a "tectonic shift" that creates immense hardship for businesses, but imagine the slippery slope that would be created if the company's own hardship request was granted. Where would it stop? The post-Dynamex world would be rocked off its foundation.

It is therefore a safe assumption that the federal court will apply Dynamex retroactively. Any other outcome will be certain to result in an application for certiorari. The 9th Circuit's decision has no binding effect on state courts, but it could end up altering the landscape for California businesses. Stay tuned.