Dynamex is retroactive, state Supreme Court rules

The state Supreme Court settled a contentious question about a landmark employment decision Thursday, when all seven justices unanimously clarified the 2018 opinion in Dynamex Operations West, Inc. v. Superior Court does apply retroactively.

The question has been a subject of debate since Dynamex established the "ABC" test as California's standard for determining whether a worker is an employee or an independent contractor. But attorneys are divided on whether Thursday's opinion actually brings clarity to the legal landscape Dynamex has arguably upended in recent years. While the opinion makes plain the standards that apply in many pending misclassification claims, the attorneys said it does not resolve a host of other questions -- including those pertinent to the case at hand.

Prior to Dynamex, the state Supreme Court had never issued a decision on how the "suffer or permit to work" standard should be used in California to distinguish between employees and independent contractors, California Chief Justice Tani G. Cantil-Sakauye wrote in Thursday's opinion. "Because we had not previously issued a definitive ruling on the issue addressed in Dynamex, we see no reason to depart from the general rule that judicial decisions are given retroactive effect," she said.

Cantil-Sakauye went on to reject arguments that it would be unfair to penalize employers who used a different classification standard prior to the Dynamex decision, writing that the court's opinions in prior cases were consistent with the 2018 ruling. "The ABC test articulated in Dynamex was within the scope of what employers reasonably could have foreseen," she wrote.

The "ABC" test will apply to cases pending at the time Dynamex was finalized.

The 9th U.S. Circuit Court of Appeals asked the high court to consider the retroactivity question last September. The class action, Vazquez v. Jan-Pro Franchising International Inc., 2021 DJDAR 535, was filed by Lichten & Liss-Riordan PC partner Shannon Liss-Riordan a decade earlier, on behalf of janitor-franchisees who provide cleaning services using the Jan-Pro moniker. The janitors alleged Jan-Pro misclassified them as independent contractors using a three-tier franchising model.

At oral argument in November, both Liss-Riordan and Jan-Pro's attorney, Willenken LLP partner Jason H. Wilson, asked the high court to decertify the retroactivity question. Liss-Riordan argued the passage of Assembly Bill 5, the law that codified Dynamex when it went into effect in 2020, mooted the question of Dynamex's retroactivity since the new law indicated it would "apply to matters predating its enactment."

Wilson meanwhile said Jan-Pro is not a hiring entity, and did not directly classify the janitors. "The 'ABC' test should have never been applied to Jan-Pro," Wilson said in November.

Mary-Christine "M.C." Sungaila, who is leader of Buchalter's appellate practice group and not involved in the case, said Thursday's opinion did not settle either of the issues raised by Liss-Riordan and Wilson. Because the 9th Circuit had only asked the high court to consider the retroactivity question, the question of whether Jan-Pro, a franchisor, should be held to the Dynamex standard is never answered, she said.

"The bigger question is: What does this mean overall? Because Dynamex doesn't stand alone. You have a lot of legislative and proposition activity that is sitting out there," she added, referring to Assembly Bill 5 and the recently-passed Proposition 22, which exempts gig drivers from the "ABC" test. Although Assembly Bill 5 codifies the Dynamex decision, it also includes exemptions for specific industries, Sungaila said. "Your first question is not, 'How does it apply in my case?' but 'Which one applies [Assembly Bill 5 or Dynamex]? Because that's the money question. If you're exempted ... you don't have to worry about anything if you're an employer," Sungaila said.

The slightly different guidance by the Legislature and the state Supreme Court illustrates the separation of powers at play, Sungaila said: "Different actions by different branches of government."

Liss-Riordan said she was pleased with the court's decision. "The court reaffirmed the strength of the ABC test adopted in Dynamex. It also reminded us all that the test was necessary because the multi-factor test in Borello had led to inconsistent outcomes that did not give workers and employers sufficient guidance to know their rights and responsibilities," she wrote in an email. Borello was the standard California courts used to determine a worker's classification prior to Dynamex.

"This decision should be a big help to workers across California who are continuing to litigate misclassification wage violations that occurred before April 2018," Liss-Riordan said, but added the decision would not impact "the legal standing of gig workers going forward."

Wilson did not respond to a request for comment.