Vasquez v. Jan-Pro Franchising International, Inc.: Retroactive Effect for the ABC Test of Employee Status

January 27, 2020

In April 2018, the California Supreme Court issued a landmark decision in the matter of Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, placing the burden on any entity classifying an individual as an independent contractor to establish that the worker was in fact an independent contractor and not an employee, and creating the “ABC test” for determining independent contractor determinations.   Under the ABC test, a worker is deemed to be an employee for wage order purposes, unless the putative employer proves:

(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;

(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.

The Dynamex court, however, did not address whether the Dynamex decision would be applied retroactively, a question which Ninth Circuit certified to the California Supreme Court in July 2019.

In a long-awaited decision, the California Supreme Court recently held -- in an unanimous decision -- that the Dynamex standard applies retroactively to claims predating the Dynamex decision.  [Vazquez v. Jan-Pro Franchising International, Inc., No. S258191 (Jan. 14, 2021).]  In Vasquez, the high court concluded that Dynamex did not overrule any prior California Supreme Court decision or disapprove of a previous California Court of Appeal decision, nor did it "change a settled rule on which the parties below had relied."  Therefore. the Supreme Court found "no reason to depart from the general rule that judicial decisions are given retroactive effect."  This decision is significant because it immediately subjects companies to the full 3-year statute of limitations for unpaid wages under the California Labor Code and 4-year statute of limitations under the California Unfair Competition Law.

Of course, for California employers, the situation is not that simple.  They must not only concern themselves with the going-forward liability associated with Dynamex, but also with the consequences of Dynamex on current litigation.  These consequences may not be obvious at first.  For example, a pending wage and hour class action which was at issue when Dynamex was decided could be affected and expanded as a consequence of the Vasquez decision.

In the meantime, one group of California employers has been able to avoid this fate.  “Gig economy” workers such as Uber and Lyft driver are, of course, exempt from Dynamex entirely under the conditions approved by voters in Proposition 22.  [See. Bus. & Prof. Code §7451.]  However, companies without the means to appeal for exemption directly to the voters are not so lucky, and all of the strictures of California employment law will apply regardless of the form chosen by the parties to the relationship.

Graham Cridland is a Partner at the Firm's Sacramento office.  He is co-chair of the Firm's Employment Practice Group and Trucking Practice Group.  Graham can be reached at (916) 483-5181 or gcridland@ericksenarbuthnot.com.