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Dynamex: Buckle up for a Wild Ride!

After ten years of litigation new judicial opinions regarding classification of workers as independent contractors or employees, the 'ABC' Test, create uncertainty as to which law is to be applied when, are the court decisions retroactive or only prospective.
By Simpluris Research Team
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Ever feel that an action/adventure movie is just a roller coaster ride. Fast moving action, new, interdependent players forcing the challenged observer to keep track of the interrelationships? The story arch never seems to end. This is such a tale. Litigation and court decisions of a case ten (10) years in the making heats up, with action in state courts in Massachusetts, Pennsylvania and California, along with the Ninth Circuit. And let's throw in the California legislature and the state's premier employment law enforcement agency.

So, buckle up your seat belt, pull down that bar that keeps you snug in that coaster bench seat, and get ready for the ride. 

Original Decision in Dynamex Operations West, Inc. v. Superior Court California Supreme Court April 2018 

A new legal trend to determine whether a worker is an employee or independent contractor is sweeping the land. It's called the "ABC" test. In April of 2018 the California Supreme Court adopted the test in Dynamex Operations West, Inc. v. Superior Court. The factors of the test are 

  1. 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;
  2. The worker performs work that is outside the usual course of the hiring entity's business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

For more information about the Dynamex decision and evolving employee/independent contractor law in wage cases read The Shrinking Demise of the Independent Contractor Defense in Wage and Hour Class Actions.

Multi-Leveled Cleaning Franchises

But a new rise, fall and wild turn on the roller coaster ride is being experienced due to a unique multi-leveled franchise model of janitors indirectly "purchasing" a cleaning franchise via third parties. The franchisee/workers claimed the scheme was created to misclassify them as independent contractors to avoid paying minimum wage and overtime. Vazquez v. Jan-Pro Franchising International, Inc., I (9th Circuit 2019). The franchisor/employer of course argued the ABC test did not apply to them, contending they sell intellectual property rights to a "master franchisee" who in turn sells businesses to the franchisee. Jan-Pro Franchising strenuously argued they had no contractual dealings with the franchisee. However, the putative employee obviously argues the contra view, that these "franchising schemes" in the janitorial industry are specifically designed to circumvent wage laws to the detriment of this traditionally underpaid, mostly immigrant workers community. The International Franchise Association deemed application of the ABC test to franchisees as a "death knell for franchising in California."

The battle lines are drawn. Join us for the wild ride.

Vazquez v. Jan-Pro Franchising International, Inc., I - Is Dynamex Retroactive? 

For openers, this 2019 Ninth Circuit decision originates from wage and hour class action complaints filed in 2008 in Massachusetts and Pennsylvania. The case found its way to California federal courts and was dismissed by Northern District of California on summary judgment. However, the district court's decision was issued prior to the Ninth Circuit's Dynamex ruling, and after Vazquez's initial briefing. So, the appeals court sought additional briefs regarding Dynamex's impact, if any, on the Vazquez case. The key question - Is the Dynamex adoption of the ABC test "retroactive"? 

The Vazquez court came out strongly for retroactivity, vacating the district court's summary judgment ruling in favor of the franchisor, stating the California Supreme Court has repeatedly quoted then-Justice Rehnquist in explaining that "the principle that statutes operate only prospectively, while judicial decisions operate retrospectively, is familiar to every law student." The Ninth Circuit also leaned heavily on the California High Court's declining to even rule on an employer's organization's amicus brief on the same issue, and that California appeals courts were already consistently applying the ABC test retroactively. 

Hence, in May of 2019 the Ninth Circuit ruled in favor of retroactive application of Dynamex. 

But this is a wild roller coaster ride. Hang on! 

Vazquez v. Jan-Pro Franchising International, Inc., II - (July 2019) The Ride is Not Over!

After this decision was issued Jan-Pro Franchising filed a Petition for a Rehearing, or Rehearing En Banc. (En Banc in the Ninth Circuit means the Chief Judge and ten other judges hear the case again). Creating more uncertainty, it is up to the federal appeals court whether to even consider such a petition. About 50 such requests are made each year, with about 15-25 of the requests being granted. Creating more uncertainty, it is up to the federal appeals court whether to even consider such a petition. Alternatively, Jan-Pro requested the matter be "certified" to the California Supreme Court. A certification request essentially means that the U.S. Supreme Court, a federal appeals court, or a different state's high court, can request the California Supreme Court (or any different state supreme court) to make a decision of law that could determine the outcome of a matter pending in the requesting court, usually when there is no prior controlling precedent to guide the requesting court. The state supreme court has no obligation to act, but statistically usually do. 

And hence our roller coaster ride is not over (by a long shot) as --- as the Ninth Circuit "withdrew" its decision in Vazquez v. Jan-Pro Franchising International, Inc., I, and instead seeks "certification" from the California Supreme Court in the retroactivity issue. In a more normal setting, it would generally all be over if the California Supreme Court declines to provide a "certified" opinion and does nothing. Or the state high court might rule. But this is anything but a normal setting. 

The California Legislature Wants to End the Roller Coaster Ride

In December 2018, in response to Dynamex, the California Legislature commenced consideration of Assembly Bill (AB) 5. It seeks to codify Dynamex's core ruling into statute, as well as some of its progeny. More importantly, the proposed legislation deems that Dynamex I to be retroactively applied, the same result the employers are fighting in the courts. Employee groups and labor unions argue that for too long employers have misclassified their workers as "independent contractors" to avoid various wage and hour laws and health benefit. The franchising industry says, no, the test is too stringent and will destroy the economy in our sector. 

And as with any statute, there are exemptions. Licensed insurance, real estate security brokers and licensees, doctors, dentists, lawyer, architects, engineers, accountants, and even some barbers and hairstylists are exempt in certain circumstances. Don't ask why, but licensed manicurists are exempted until January 2022, and commercial fisherman are until January 2023.  At this writing the California Senate has approved the measure and it now goes back to the Assembly for the final legislative vote. California's governor has stated his support and is expected sign the bill into law. 

And thus, our saga ends... Wrong. Remember the action/adventure movie with the story arch that never ends?  

$90 Million Ballot Initiative Planned 

With the expected passage of AB 5 Uber, Lyft and Door Dash, sharing business models of classifying drivers as independent contractors are now challenged, are planning to spend $90 million on a California 2020 ballot initiative to be exempted from the law. These companies would not only have to pay their workers as employees under the wage laws, but also offer health benefits. So, California voters will have a full plate of media and internet activity on this issue. $90 million buys a lot. Not to mention funds that will roll in for a "no" vote from unions and other employee groups. 

And it is expected other states will pass similar laws. Even if you close your eye the roller coaster keeps traveling on. But if you close your eyes it is hard to follow the story line of the action/adventure movie. Simpluris believes it better to keep your eyes open.

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