A Victory for App-Based Drivers: California Superior Court Strikes Down Proposition 22

In a momentous win for app-based drivers, the California Superior Court struck down Proposition 22 on August 20th, 2021. Gig companies such as Uber and Lyft spent an unprecedented $200,000,000+ to pass Proposition 22 in order to exempt themselves from treating app-based drivers as employees. Designating these workers as independent contractors allows companies like Uber and Lyft would to avoid their obligations to provide basic protections to their drivers, including a minimum wage, health insurance, contributions to workers compensation, and the ability to unionize. Bryan Schwartz Law has written before about these and other dangers of Prop 22: as independent contractors, drivers are paid an effective rate of about $5.64 per hour, well under the minimum wage, and would be denied an array of vital benefits and protections. 

Although proponents of Proposition 22 claimed that it would protect the independence of app-based drivers, the California Superior Court disagreed in Castellanos. The court even found that a provision of Proposition 22 that prohibited the Legislature from passing laws allowing app-based drivers to unionize only served to “protect the economic interests of the network companies in having a divided, ununionized workforce” and was completely unrelated to the stated goal of protecting drivers. The court found that this provision was therefore outside of the “single-scope” of Proposition 22; however, because the provision was severable, this finding did not impact the rest of the proposition.

Even more striking to the court was how Proposition 22 curtailed the ability of the Legislature to provide a robust system of workers’ compensation, an essential part of our social safety net. Our Legislature’s ability to protect injured workers through an expansive workers’ compensation program is so critical that the power is enshrined in the California Constitution and completely unlimited by any other provision of the Constitution. Only a Constitutional amendment can reduce workers’ right to receive worker compensation. Proposition 22’s attempt to create a statute that reduced the number of employees eligible for workers compensation was therefore unconstitutional. Unlike the provision limiting drivers’ ability to unionize, this provision limiting workers’ compensation was not severable, so the court’s ruling that this provision was unconstitutional meant that the entirety of Proposition 22 was rejected.

Before Proposition 22 was in place, California used the ABC test that was established by the 2018 California Supreme Court decision in Dynamex, and codified by AB5, to determine whether someone is an employee or an independent contractor. Under the ABC test, a worker is an independent contractor only if: 1) the worker is not controlled or directed by their employer in how they perform their work, 2) their work is outside the scope of the employer’s usual business, and 3) the worker is working in an independently established trade or business that matches their work for their employer. The employer must prove each of these elements before it can call a worker an independent contractor. The ABC test makes it much more difficult for employers to classify workers as independent contractors, which allows many more workers to receive the benefits and protections to which they are entitled. 

The decision in Castellanos vindicates the rights of hundreds of thousands of app-based drivers throughout California. This decision will likely be appealed, but it still represents an important step towards ensuring that app-based drivers receive the respect and protections that they deserve.

 

If you believe you have been misclassified as an independent contractor, please contact Bryan Schwartz Law.

California Supreme Court Expands Number of Workers Classified as Employees Rather Than Independent Contractors

The 2020 presidential election successfully ousted an administration and political movement that has sought to undermine workplace protections, and reaffirmed democracy and the rule of law.

But it also saw the overwhelming passage of Proposition 22 in California after gig employers spent a jaw-dropping $200,000,000+

(the most in California history) to write its own law, much to the dismay of worker advocates and to the detriment of gig economy workers. Proposition 22 exempts app-based rideshare and delivery com
panies from their responsibilities under landmark worker protection law A.B. 5 and the Supreme Court of California’s decision in Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, which classify drivers as employees.

Good news for workers came early in 2021: the California Supreme Court has determined that the Dynamex decision applies retroactively to cases that arose before Dynamex was decided in 2018. The decision is Vazquez v. Jan-Pro Financing International, Inc.

Dynamex established the “ABC test,” a three-part legal test that makes it more difficult for businesses to ignore worker protections by classifying them as independent contractors. Under the ABC Test, a business can classify a worker as an independent contractor only if the employer can show all three parts:

A)      The person is free from the control and direction of the hiring entity in connection with the performance of the work;

B)      The person performs work that is outside the usual course of the hiring entity’s business; and

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

If the business cannot prove all three of these parts, the worker is an employee. Unlike independent contractors, employees are guaranteed protections like sick leave, minimum wage, overtime pay, reimbursement for their expenses, health insurance, and the right to organize. Gig employers such as Uber, Lyft, Doordash, and Postmates hoped to avoid these legal obligations  to their workers by bankrolling Proposition 22—which is why its passage was such a stinging defeat for gig workers.

A three-judge panel of the Ninth Circuit Court of Appeals had already held that the ABC test applies retroactively in May 2019, but that did not end the debate. On rehearing, the Ninth Circuit decided to ask the California Supreme Court what it thought and withdrew its opinion. In a victory for workers, the California Supreme Court unanimously held on January 14, 2021, that the Dynamex decision should apply retroactively to cases arising before it was decided.

Judicial decisions like Dynamex usually apply retroactively, but the defendant here argued that Dynamex should be an exception because the ABC test was, in their view, a new rule. As such, according to the defendant, it would not be fair to apply Dynamex retroactively. The court disagreed, opining that decisions prior to Dynamex had put hiring entities on notice that the previous state of the law regarding independent contractor status was not firmly settled. To the contrary, the court stated that “fairness and policy considerations underlying our decision in Dynamex favor retroactive application,” because workers’ protections enable “them to provide at least minimally for themselves and their families and to accord them a modicum of dignity and self-respect.” If Dynamex were not applied retroactively, the court feared that many workers would be denied the intended protections of California law.

Though this is a victory, it is a limited one. Statutes of limitations already restrict the number of workers who may assert their rights as employees improperly misclassified as independent contractors. However, Proposition 22 does not apply retroactively, meaning that gig workers have a window in which to exercise their legal rights in light of this decision.

If you have wrongly classified as an independent contractor instead of an employee, contact Bryan Schwartz Law.

WHAT’S NEXT FOR GIG WORKERS’ RIGHTS AFTER PROP. 22?

 

While the COVID-19 pandemic sweeps across this nation, employers are taking advantage of the pandemic-induced recession to, once again, eliminate jobs and transition workers into the gig-economy. A recent New York Times article highlights the uncertainty facing today's workers. The labor market has only recovered 12 million of the 22 million jobs lost this past spring, leaving 10 million formerly employed workers, often in the service-industry, reeling. Many of these jobs may not return once the pandemic is over and the economy improves, as happened after the Great Recession of 2008. While the New York Times notes that these workers often need retraining or additional education to compete for jobs, gig-economy companies continue to hire these vulnerable workers without the employment protections to which workers are – or should be - entitled. In California, the gig-economy companies pulled off a sleight of hand, through the most disproportionately-funded ballot measure in the state’s history, Proposition 22 ("Prop. 22"), for the purpose of potentially continuing to exempt their workers from some of the robust employee protections that California’s legislature, Governor, Supreme Court and lower courts had previously ensured. While the ballot measure succeeded, gig-economy workers should still have claims under the law.

 The roots of today's gig-economy employment crisis began in 2008. At that time, 9 million workers lost their jobs. In its aftermath, workers often found less secure employment and/or relied on alternative work like being an independent contractor in the gig economy. Unsurprisingly, a plethora of gig-economy companies, like DoorDash, Uber, Lyft, Instacart, and Postmates, have risen to be market leaders on the backs of these marginalized workers that they have treated as independent contractors exempt from legal protections. In response to the rise of the gig economy and the precarious position of gig-economy workers, all three branches of California government - the courts, legislature, and executive branch - re-affirmed that many gig-economy workers are employees entitled to the legal protections of the California Labor Code. Such protections include minimum wage (Cal. Lab. Code § 1194, among others), overtime (Cal. Lab. Code § 510), reimbursement for business expenses (Cal. Lab. Code § 2802), and paid sick leave (Cal. Lab. Code §246). Here at Bryan Schwartz Law, we have written extensively about California's efforts to protect gig-economy workers here, here, here, here, and here. In short, the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court held that workers are presumptively employees subject to the straightforward ABC test, which considers (among other things) whether the workers are providing the core services of the business (like those who drive for Uber and Lyft). The California legislature agreed with the Court and codified the ABC test outlined in Dynamex with A.B. 5, which the Governor signed, and went into effect on January 1, 2020. The Attorney General of California has sued Uber and Lyft (People v. Uber and Lyft (Sup. Ct. San Francisco), Case No. CGC-20-584402) to require them to stop misclassifying their workers under A.B. 5, and won a preliminary injunction on August 10, 2020 requiring Defendants to reclassify their drivers as employees during the pendency of the lawsuit.

In response, several gig-economy companies worked to place Prop. 22 on the ballot. Prop. 22 exempts from A.B. 5 any app-based drivers that (a) provide delivery services on-demand through an online application or platform or (b) use a personal vehicle to provide prearranged transportation services for compensation through an online application or platform. In other words, your ride-share drivers and food delivery persons are exempted from A.B. 5's codification of the ABC test. In order to sell Prop. 22 to voters through its advertising blitz, these gig-economy companies promised at least 120% of the minimum wage (which has been estimated to work out to $5.64 per hour after deducting for wear-and-tear) and 30 cents per mile when engaged - not waiting for a fare or order. While Prop. 22's passage is a setback for workers' rights, all may not be lost. Prop 22. may not be retroactive. Prop. 22 appears to be forward-looking and silent as to any worker misclassification claims that arose prior to Prop. 22's passage. When the Court issued its August 10th preliminary injunction, Judge Schulman appeared to suggest that "it would not moot out . . . past violations." (Order for Preliminary Injunction, People v. Uber and Lyft (Aug. 10, 2020), p.8). Furthermore, Prop. 22's provisions regarding healthcare subsidies and mileage reimbursement focus on future dates for payment or calculation. The remaining provisions do not explicitly discuss retroactive application except for Article 9. Article 9 provides that the Legislature may only amend Prop. 22 by a super-super majority - 7/8ths of the Legislature - including any amendments passed since October 29, 2019 (the date the ballot was filed). While it appears amending Prop. 22 will be challenging, this suggests that workers may continue to pursue claims for minimum wage, overtime, and reimbursement for business expenses that accrued prior to Prop. 22's passage. Furthermore, the 9th Circuit in Vazquez v. Jan-Pro Franchising International, Inc. made clear that Dynamex and the ABC test apply retroactively. Thus, workers may have significant misclassification claims that have accrued prior Prop. 22's passage.

Moreover, while Prop. 22 may have exempted gig-economy workers from the protections conferred upon them by A.B. 5 and the ABC test, gig-economy workers may be employees under other relevant tests. The Dynamex court extensively discussed 3 alternative tests (from Martinez v. Combs) for employment under California’s Wage Orders: 1) to exercise control over wages, hours, or working conditions; 2) to suffer or permit to work; and 3) to engage, thereby creating a common law employment relationship. You can learn more about these 3 alternative tests here and the Borello test for common law employment relationships here. The Dynamex court only applied the ABC Test with respect to the second alterative test: to suffer or permit to work. Dynamex (2018) 4 Cal.5th 903, 965. In enacting A.B. 5, the Legislature declared its intent to codify the Dynamex decision that "interpreted one of the three alternative definitions of 'employ,' the 'suffer or permit' definition . . . [and that] [n]othing in this act . . . affect[s] the application of alternative definitions . . . not addressed by the holding of Dynamex. Assembly Bill 5, Section 1(d) and (f), 2019-2020, Reg. Sess. The statute itself takes a more precise alternative in requiring that if a court rules the ABC test does not apply to a particular context, then the common law relationship test from Borello should be used. Labor Code § 2750(a)(3). Thus, A.B. 5's codification of Dynamex and the ABC test does not apply to the first and third alternative tests. Therefore, Prop. 22's exemption from A.B. 5 is limited to the second alternative test. With Prop. 22's passage and A.B. 5's statement that the Borello common law relationship test applies in the event a court exempts a particular situation from the ABC test, it is unclear which test shall be used to demonstrate that gig-economy workers are employees because Prop. 22, not a court, preempted A.B. 5. Workers may be employees under the first and/or third (Borello) tests and therefore entitled to the full protection of the California Labor Code.

Despite Prop. 22's passage, the fight for workers' rights continues. Gig-economy workers may still have misclassification claims moving forward. Workers and their advocates must recognize that while the fight may become more difficult after the misguided passage of Prop. 22, there are still avenues for pursuing these claims.   

Vote No on Proposition 22 to Protect Workers

By now, most California voters have received their vote-by-mail ballots.  One of the most critical issues on the ballot this year is Proposition 22. Prop 22 would reverse the California Supreme Court, legislature, and Governor in order to provide a windfall to ultra-rich corporations like Uber and Lyft. Prop 22 seeks to classify app-based drivers as “independent contractors,” rather than “employees,” denying drivers worker protections that are required by law to be afforded to all employees.

Uber, Lyft, DoorDash, Instacart, and Postmates have spent over $180 million trying to boost their profits at the expense of hard-working drivers, in the Prop 22 campaign. They have tried to mislead voters so that they do not have to pay their workers as the law requires. Voters must look past the barrage of pro-Prop 22 advertising and vote NO to protect workers.   

Here is what is really going on: Prop 22 would exempt app-based rideshare and delivery companies from their responsibilities under A.B. 5 and the Supreme Court of California’s decision in Dynamex, which currently classify drivers as employees. Unlike true independent contractors (like plumbers and electricians who come to fix something in your home or office), employees are guaranteed protections like minimum wage, overtime pay, reimbursement for their expenses, health insurance, and the right to organize. Via Prop 22, the ride-hailing and delivery companies are attempting to avoid providing their drivers with such protections.

 

Bryan Schwartz Law has written about A.B. 5 and Dynamex many times, for example: here, here, here, here, and here. To recap, A.B. 5 was signed into law in September of 2019, and codified the “ABC Test” laid out in Dynamex. Under the ABC Test, a worker is properly classified as an independent contractor if:

 

A)   The person is free from the control and direction of the hiring entity in connection with the performance of the work;

B)   The person performs work that is outside the usual course of the hiring entity’s business; and

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

 

For Uber, Lyft, and others to avoid paying wages, they are trying to say that driving customers is outside the usual course of what Uber and Lyft do and that the drivers are not central to the companies’ core business. They are just “technology platforms” – not companies that provide rides. Really? We’ve taken some Uber and Lyft rides – sure seems like they’re providing rides, and that the drivers are the way they do it!

 

They are lying, to say that Uber and Lyft drivers are like those contract plumbers and electricians with their own independent businesses. Given the amount of control ride-hailing and delivery companies have over their workers and the drivers’ centrality to their business model, app-based drivers have to be considered employees under the ABC Test.

 

Courts have gotten tired of the companies’ lies and their refusal to follow the law, which is why they came up with Prop 22. For example, in an August 10 order, Judge Ethan Schulman of the San Francisco Superior Court reprimanded Uber and Lyft, writing, "To state the obvious, drivers are central, not tangential, to Uber and Lyft's entire ride-hailing business."

 

According to Ballotpedia, Prop 22 is the most expensive ballot measure ever to appear in California. These companies make billions on the rides the drivers provide, so for them, spending over $180 million to buy your vote with countless television, radio, and digital ads makes sense. Lyft have even sent “Yes on 22” push notifications to customers’ phones and forced them to press “confirm” on a pro-Proposition 22 message, before being able to order a ride.

 

The ads pretend that the issues are “flexibility” and “independence.” The ads say that if Californians vote No on Prop 22, drivers will lose the flexibility to determine their hours. This is a phony argument. Nothing in the current law that Uber, Lyft, and the other companies are breaking prohibits employers from offering employees flexible schedules or part-time work. Many California employers offer that kind of work currently. One Lyft driver, Jerome Gage, put it perfectly when he wrote, “Uber and Lyft claim I want to be ‘independent.’ What I really want is to be safe and paid a living wage. That would give me independence.”

 

What Uber, Lyft and the others are not telling you is that a recent survey of San Francisco ride-hailing and delivery drivers shows that more than 70% of Uber and Lyft drivers work more than 30 hours a week, including up to “50% who work more than 40 hours and 30% who work more than 50 hours a week.” Many drivers are working full time for Uber and Lyft, without the companies respecting any of the protections that apply to employees.  The majority of the drivers say that driving for these companies is their primary or sole source of income. These workers deserve to be compensated like employees of these companies, because that is what they are.

 

Prop 22 purports that drivers will get guaranteed pay equal to 120% of the minimum wage. That rate would be about $15.60 per hour. An analysis by the UC Berkeley Labor Center shows that because of loopholes in Prop 22, the actual hourly pay rate would be closer to $5.64 an hour. You have to factor in unpaid waiting time, unreimbursed waiting time expenses, underpayment for driving expenses, and unpaid payroll taxes and employee benefits. With drivers classified as independent contractors under Prop 22, they would be responsible for costs like vehicle maintenance, gas, car insurance, taxes, and their own health insurance.  These costs eat up any “guaranteed pay” by Uber and Lyft.

 

Uber, Lyft, DoorDash, and Instacart support Proposition 22 because it protects their massive profits, not because they care about drivers. Prop 22 allows these companies not only to avoid fairly compensating their workers, but also to avoid paying payroll taxes and contributing to Social Security, Medicare, and Unemployment Insurance. Every business in California is required to provide baseline protections to their employees. Uber, Lyft, DoorDash, and Instacart should have to follow the law, like other employers.

 

If you believe you have been misclassified as an independent contractor or denied basic employee protections, please contact Bryan Schwartz Law.

Judge Orders Uber and Lyft to Treat Drivers as Employees

On August 10, a California judge issued a remarkable order blocking Uber and Lyft from continuing to misclassify their drivers as independent contractors rather than employees. This preliminary injunction from Judge  Ethan P. Schulman of San Francisco Superior Court  comes as part of the litigation brought by the State of California against Uber and Lyft because of the ride-hailing companies’ flagrant disregard for their duties under Assembly Bill 5 (A.B. 5). 

A.B. 5 codified the Supreme Court of California’s decision in Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, and was signed into law in September of 2019. Under A.B. 5 and Dynamex, drivers for Uber and Lyft should be considered employees, not independent contractors. Despite this, Uber and Lyft have continued to misclassify their drivers as independent contractors. Hopefully, the August 10 injunction forces the companies to finally change course.

 

The court highlighted that when companies like Uber and Lyft misclassify their employees as independent contractors, they deprive them of access to basic workers’ rights and protections including minimum wage, overtime pay, meal and rest breaks, workers’ compensation, unemployment insurance, health insurance, paid sick leave, and paid family leave. These worker protections are extremely important to working families and the economy as a whole, especially in the face of the challenges posed by a pandemic. 

 

The court explains that in order to grant a preliminary injunction of Uber and Lyft’s violations of A.B. 5, the government must demonstrate that it had a reasonable probability of prevailing, with a presumption that the nonissuance of an injunction would be harmful to the public. This is different than in an ordinary case with private parties, where the party seeking the injunction faces a higher burden. This is because by enacting a statute, the legislature has already determined that a violation goes against the public interest.

 

In this case, the court opined that the government demonstrated an “overwhelming likelihood” of prevailing and that “substantial public harm” will result without an injunction. According to the court, Uber and Lyft’s violations of A.B. 5 pose, “real harms to real working people.” Under A.B. 5’s “ABC” test, a person is properly classified as an independent contractor if: (A) The person is free from the control and direction of the hiring entity in connection with the performance of the work; (B) The person performs work that is outside the usual course of the hiring entity’s business; and (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

 

The judge in this decision primarily examined element B, which requires that the work performed be “outside the usual course of the hiring entity’s business.” Uber argued, as it has before, that it is a technology company, rather than a company that provides car rides, and that its “actual employees” work in engineering, development, marketing, and operations. Driving, the company insists, is not part of Uber’s usual course of business. The court rejected this argument, instead insisting that Uber could not survive without its drivers. Because drivers are central to Uber and Lyft's business models, they should be classified as employees. 

 

Since the August 10 order, Uber and Lyft have threatened to halt operations in California, and Judge Schulman has denied the companies’ request for an extension of the deadline to appeal. Uber and Lyft have been attempting to delay their compliance with A.B. 5 because the companies are funding a ballot measure, Proposition 22, which would re-classify drivers as independent contractors. In issuing the injunction, however, the judge explained that he could not excuse the companies from compliance with A.B. 5 simply because they are waiting to see if Proposition 22 passes in November.

 

Bryan Schwartz Law has written about A.B. 5 and Dynamex here, here, here, and here. If you believe you have been misclassified as an independent contractor, please contact Bryan Schwartz Law.

New Decade, New Worker Protections: AB-5, Dynamex, and Independent Contractor vs. Employee Status in 2020

Struggles over newly-in-force AB-5 are already well under way.

AB (California State Assembly Bill) 5 is a newly-enacted California law codifying the landmark California Supreme Court case Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, under which many California workers are considered employees, who better benefit from California legal protections, rather than independent contractors. Bryan Schwartz Law has written about Dynamex here and here, and about AB-5 here. To recap, Dynamex established the “ABC” test for determining whether a worker is an employee or an independent contractor, with a presumption that a worker is an employee, and with the burden on companies to demonstrate that workers are independent contractors. Id. at 957. To meet this burden, the putative employer must show that the worker: (a) is free from the control and direction of the hiring entity, (b) performs work outside the usual scope of the entity’s business, and (c) is engaged in an independently established trade, occupation, or business. Id. at 964. Failing to demonstrate any one of these elements is sufficient to show an employee-employer relationship. Id. at 964. AB-5 codified this test for most workers in California.

The business community has mounted a campaign to weaken or eliminate this expansive protection for California workers. For instance, gig economy giants Uber, Lyft, and DoorDash have spent millions of dollars introducing a ballot measure to exempt them from AB-5 and permit them to continue exploiting their drivers. Uber has also changed its operations in California to try and satisfy AB-5, sending a letter to riders explaining their changes and threatening that AB-5 could hurt riders. Uber has also argued that it is a technology company instead of a transportation company (which does not even pass the laugh test), to try to help Uber satisfy the “B” prong of the test.

The trucking industry has also fought AB-5. On New Year’s Eve, federal judge Roger Benitez issued a temporary restraining order temporarily preventing enforcement of AB-5 “as to any motor carrier operating in California,” in the case California Trucking Association v. Becerra, 3:18-cv-02458-BEN-NLM. The temporary restraining order opined that there was a significant likelihood that AB-5’s applicability to truck drivers would be preempted (and thereby unenforceable) by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA” or “F-Quad-A”), which has language that applies to “any motor carrier.”

Los Angeles County Superior Court judge William Highberger went further in an order issued earlier this month in California v. CAL Cartage Transportation Express LLC, BC689320. The Los Angeles City Attorney’s Office filed the case on January 1, 2018, before Dynamex had been decided, and alleged that the company defendants had misclassified their truck drivers as independent contractors when they should have been classified as employees. Following Dynamex and AB-5, the Los Angeles City Attorney argued that the stronger “ABC” test should apply, while the defendant companies maintained that the previous multi-factor independent contractor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, should apply instead. The judge sided with the defendant companies, opining that AB-5 was in fact preempted by the FAAAA, under the premise that “Prong B of the ABC test . . . prohibits motor carriers from using independent contractors to provide transportation services.”

The issue is far from decided. Judge Highberger’s decision is surely going to be challenged on appeal, and hundreds of truck drivers have filed labor complaints to enforce their rights under AB-5, signaling further litigation. There also remains the question of whether Dynamex’s ABC test applies retroactively to disputes arising before Dynamex was handed down. Last fall, the 9th Circuit Court of Appeals certified this question to the California Supreme Court in Vazquez v. Pan-Pro Franchising International, Inc. The California Supreme Court is also reviewing a state appeals court case, Gonzales v. San Gabriel Transit, Inc., which held Dynamex to apply retroactively. The struggle over the worker protections of Dynamex and AB-5 goes on.

If you believe you are being treated as an independent contractor when you should be treated as an employee, contact Bryan Schwartz Law.

No Question of Timing – Dynamex Applies Retroactively, Ninth Circuit Court of Appeals Says

It makes a big difference whether a worker is an employee or an independent contractor. Employees benefit from the protections of labor, employment, and other valuable statutory protections that do not cover independent contractors.

The breadth of “employee” status has been clarified under developing California law. Last year, the California Supreme Court decided the landmark case Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, about which Bryan Schwartz Law has written previously. This case established the “ABC” test for determining whether a worker is an employee or an independent contractor, with a presumption that a worker is an employee, i.e., with the burden on putative employers to demonstrate that workers are independent contractors. Id. at 957. To meet this burden, the putative employer must show (a) that the worker is free from the control and direction of the hiring entity, (b) the worker performs work outside the usual scope of the entity’s business, and (c) the worker is engaged in an independently established trade, occupation, or business. Id. at 964. Failing to demonstrate any one of these elements is sufficient to show an employee-employer relationship. Id. at 964.

But does the Dynamex test apply retroactively to cases arising before it was decided? It does, according to the decision in Vazquez v. Jan-Pro Franchising International, Inc., which the Ninth Circuit Court of Appeals issued on May 2, 2019. Workers for international janitorial giant Jan-Pro filed this case in 2008, alleging Jan-Pro implements a business model to misclassify workers as independent contractors and escape the company’s minimum wage and overtime responsibilities. Jan-Pro contracts with franchises of “master owners,” which in turn contracts with “unit franchisees.” Master owners themselves do not clean but instead engage in various managerial or administrative duties; unit franchisees clean. The plaintiffs, janitorial workers at unit franchisees, alleged they were misclassified as independent contractors.

The case had a tortured procedural history with over a decade of litigation, dispositive decisions, and appeals in federal and state courts in California, Georgia, and Massachusetts. In the Ninth Circuit, Jan-Pro argued that a judicial ruling in Georgia had already decided the issue, thereby conclusively resolving the Ninth Circuit case as well under the doctrine of res judicata. Regardless, Jan-Pro argued, the Dynamex decision should not apply retroactively to cases arising before it was decided in 2018.

The Ninth Circuit rejected both arguments. The Court disposed of the res judicata arguments on grounds specific to the procedural history of the litigation. In brief, the Court held that the Massachusetts plaintiff was not in privity with the California plaintiffs, nor did he legally represent their interests—the California plaintiffs could not lose their day in court simply because of a similar case involving someone else on the east coast.

Next the Court addressed the important issue at stake for California workers: whether the Dynamex decision applied retroactively. The answer was a resounding “yes.” California’s judicial decisions traditionally apply retroactively, even when overruling past precedent. The Court adhered to this traditional rule, drawing further support from other California courts’ retroactive application of the Dynamex decision and the California Supreme Court’s summary denial of a petition to modify Dynamex to clarify that it was prospective only. Notably, despite its considerable impact on the lives of workers and employment law practice, the Dynamex decision did not create new law but instead hewed close to the fundamental purpose of existing California law. Because the lower court had dismissed the workers’ claims on summary judgment before Dynamex was decided, the Ninth Circuit remanded the case for a decision in light of Dynamex.

If you believe you are misclassified as an independent contractor and should enjoy the same rights as an employee, contact Bryan Schwartz Law.