ABC Test is alive and well in the 9th Circuit

The verdict is in for gig companies: Proposition 22 did not signal the death of Dynamex Operations West v. Superior Court, 4 Cal. 5th 903 ( 2018), and its ABC test for worker classification. On Sept. 20, a three-judge panel of the 9th U.S. Circuit Court of Appeals ruled in favor of a Grubhub driver who had originally sued the company in 2015 for misclassifying him as an independent contractor and denying him minimum wage and other employment benefits.

In an unanimous decision in Lawson v. Grubhub, 2021 DJDAR 9791, the court breathed new life into claims by thousands of gig workers for retroactive relief under Dynamex and AB 5. In clear language, Circuit Judge William Fletcher put to bed Grubhub's contention that Prop. 22, the voter-approved app-based gig worker law, was the sole arbiter of the matter.

"We conclude without difficulty that Proposition 22 does not apply retroactively," Fletcher wrote, citing the holding of Evangelatos v. Superior Ct., 753 P.2d 585, 598 (1988), that California has a "settled presumption against interpreting statutes -- including ballot propositions -- as having retroactive application."

To further drive the point home, the court cited Vazquez v. JanPro Franchising International, Inc., 478 P.3d 1207 (2021), a case decided earlier this year in which the California Supreme Court ruled that the ABC test applied retroactively to claims rooted in wage orders. Based on that decision, Lawson's claims should be reviewed through the Dynamex prism, the court concluded.

Most significantly, the panel rejected Grubhub's contention that Propo. 22 "abated" the application of the ABC test to Lawson's claims. Dynamex, the court held, "did not change a settled rule on which the parties below had relied." Applying the ABC test furthered "public policy and fairness concerns, such as protecting workers and benefitting businesses that comply with the wage order obligations."

After evaluating the four factors established by Zipperer v. County of Santa Clara, 35 Cal. Rptr. 3d 487, 494 (2005), for determining if abatement is proper: whether a claim is statutory, if rights are vested, the timing of the elimination of a right, and the mechanism by which a right is abolished, the court concluded that abatement was unsupported: "We therefore conclude that Proposition 22 did not abate Lawson's claims under the ABC test."

Attorneys representing drivers for Uber, Lyft, Doordash and, yes, Grubhub can finally take a breath and move forward with claims against these companies for violations pre-Prop. 22. Abatement has been the monster in the closet ever since voters approved Prop. 22, and huge sums have been spent to procure legal advice that supports a world view in which Dynamex never existed.

With abatement of Dynamex, Assembly Bill 5 and ABC finally off the table, gig workers who for years were classified as independent contractors, denied benefits and a living wage, are seeing light at the end of the tunnel. Claims based on the wage order -- those that implicate minimum wage, overtime, meal and rest breaks, and other hallmarks of employment -- will now conclusively be subject to the ABC test.

And given what we all know about work conditions for these rideshare and delivery drivers, the companies that benefit from their services will be hard-pressed to establish any ABC exemption. Just as a refresher for those rusty on the ABC test -- which could once more be prevailing law if another recent decision is upheld (see Castellanos v. California (RG21088725, Aug. 20, 2021)) -- a worker is properly classified as an employee unless the hiring entity establishes all three of the following factors:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) that the worker performs work that is outside the usual course of the hiring entity's business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Unresolved is the fate of Lawson's claims for reimbursement of expenses under California Labor Code Section 2802. The court in Dynamex did not consider whether expense reimbursement claims were subject to the ABC test, and the 9th Circuit declined to decide the issue, remanding it for the district court. "Neither Dynamex nor AB 5 clearly settles whether the ABC test should be applied to Lawson's expense reimbursement claim. The California Courts of Appeal have not squarely decided whether the ABC test applies to expense reimbursement claims arising out of conduct prior to January 1, 2020."

With its decision, the 9th Circuit reinforced and validated what every California plaintiffs' employment attorney has long asserted. The ABC test still applies to gig workers for wage order violations up until Prop. 22 became law in December 2020. Just because Prop. 22 exists, it does not abolish the viable claims of whole classes of workers who invested their time and sweat to build the businesses that have disowned them.

With a three-year statute of limitations for most wage order claims, wage order violations from September 2018 through December 2020 are not subject to Prop. 22, but instead fall under the ABC test. Expect to see the litigation floodgates open.