Circuit asks Supreme Court if Dynamex is retroactive

As it promised back in July, the 9th U.S. Circuit Court of Appeals punted on whether the 2018 Dynamex decision, recently signed into law as the employee-reclassifying AB 5, applies retroactively, setting up a potential powder keg that could blow up in the faces of gig economy companies like Uber and Lyft.

In an order published Tuesday, the federal appeals court redirected the retroactive question to the California Supreme Court, asking it to resolve and certify its decision in Dynamex Operations West v. Superior Court, 2018 DJDAR 3856.

The appeals court took it one step further, agreeing to accept and abide by any decision the state high court makes if "it agrees to decide this question," according to the order. "We recognize that the court has a substantial caseload, but we submit this question in the interest of comity and because of its significance for California labor law and California business."

It's not the first time the 9th Circuit has asked the state Supreme Court to handle critical matters of California law, said Gary M. McLaughlin, a partner at Akin Gump Strauss Hauer & Feld LLP. What is surprising, however, is the appeals court actually published -- then retracted -- an opinion certifying Dynamex was retroactive.

A three-judge panel concluded in May Dynamex applies retroactively because the ruling focused only on the state's wage orders and did not create new law. Vazquez v. Jan-Pro Franchising International, 2019 DJDAR 3707 (9th Cir., May 2, 2019).

Two months later, the court pulled back, acknowledging, "The question presents 'important public policy ramifications' yet unresolved by the state court," according to court records.

"I've seen a number of instances where the 9th Circuit certified a question to the California Supreme court, but, in my experience, I can't think of an example where they actually issued a decision and then changed their mind," McLaughlin said.

Given the passing of AB 5 last week, both McLaughlin and Brian Kabateck of Kabateck LLP said they believed the state Supreme Court would certify the decision retroactively. If that happens, under the California Labor Code and the state Unfair Competition Law, the statute of limitations on current misclassification lawsuits could go as far back as four years from the date of filing the claim.

"There's nothing in the opinion that indicates it's some new revelation," Kabateck said. "Companies that are currently in litigation would be well advised to try to settle because I don't think it's going to turn out well for them."

Both McLaughlin and Kabateck said the exposure was particularly high for gig economy companies like Uber and Lyft. Not only are both currently defending against misclassification lawsuits, their companies could suffer massive losses if they have to reclassify their majority contractor workforce once AB 5 becomes law on Jan 1. Uber has already vowed not switch its workers.

Recourse could come from a possible statewide ballot measure Lyft and Uber -- along with DoorDash -- have pledged $90 million to have ready for the November 2020 general election, Kabateck said. If they can get enough signatures, 8% of the population who voted for governor, or nearly 1 million signatures, that would stay enforcement of AB 5 for all employers.

"It's about $2 a signature," said Kabateck of the price for gathers to procure signatures. "These are money people. If Uber has no intention of complying with the law, then they're going to run an initiative. That's my prediction."