Ninth Circuit Holds That Dynamex Independent Contractor Test Applies Retroactively
Yesterday, the Ninth Circuit issued its decision in Vazquez v. Jan-Pro Franchising, Inc., holding that last year’s California Supreme Court decision in Dynamex Operations West v. Superior Court applies retroactively. This is the first published decision addressing the retroactivity of the Dynamex decision.
In Dynamex, the California Supreme Court created a brand new test for assessing whether a worker qualifies as an independent contractor for purposes of California wage and hour laws. That test is very narrow, making it difficult for the vast majority of traditional freelance workers to continue qualifying as independent contractors. And, although it cannot genuinely be disputed that Dynamex created “new” law in this regard, the California Supreme Court did not indicate (despite an express request for it to do so) whether it intended its ruling to apply prospectively only or whether it intended it to operate retroactively as well. This is a very important issue, of course, because retroactive application means that an employer can be held liable for classifying workers as independent contractors prior to the April 30, 2018 Dynamex decision, if those workers do not meet the new narrow independent contractor test prescribed by the Dynamex Court (even though that test did not exist before April 30, 2018). This is true even if the workers qualified as independent contractors under the pre-Dynamex, multi-factor Borello test, and even though employers did not even know about the Dynamex test (in order to comply with it) prior to its issuance. Such a result smacks of unfairness, if not an obvious violation of constitutional due process.
Despite the significant unfairness of retroactive application of the new independent contractor standard, the Ninth Circuit has now held in a published decision that Dynamex applies retroactively. In the specific case before the Ninth Circuit, which raises a number of unrelated but complex factual and legal issues, the district court had dismissed the plaintiffs’ claims. Post-dismissal, the Dynamex ruling was issued. Plaintiffs argued to the Ninth Circuit that the dismissal had to be vacated and the case decided on the merits under the new Dynamex standard. The Ninth Circuit agreed, holding that Dynamex applies retroactively. That ruling is binding on all federal district courts in California. It is not binding on California state courts, but still may be considered persuasive by a California state court. Additionally, it should be noted that two trial courts in California have similarly concluded, albeit in unpublished (not binding or of precedential value) rulings, that they too believe that Dynamex applies retroactively. Strangely, the courts do not seem concerned or bothered by the fact that retroactive application of brand new legal standards is patently unfair to the companies who have to pay costly judgments for misclassification based on a standard that did not even exist at the time the classification decisions were made (and of which companies had no prior notice). The Ninth Circuit addressed the due process concerns raised by the employer, but dismissed them as unmeritorious, reasoning that retroactive application “ensures that Plaintiffs can provide for themselves and their families,” and “ensures that California will not be burdened with supporting Plaintiffs because of the ‘ill effects’ that ‘result from substandard wages.’” Sounds a lot like legislative policy-making, doesn’t it?