Aug. 17, 2018 Takeaways From 1st Retroactive Application of Dynamex

In April 2018, the California Supreme Court issued its Dynamex decision after nearly 13 years of litigation. In doing so, the court interpreted long-standing California law to fashion an updated framework, the “ABC test,” to distinguish between employees and independent contractors.

Significantly, the ABC test presumes an employment relationship. This means that, when a workplace dispute converts to formal litigation, employers now bear the burden of proving their workers’ independent contractor status. Thus, to nix lawsuits over worker misclassification, employers must now satisfy each of the three prongs of the ABC test:

(A) 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) The worker performs work that is outside the usual course of the hiring entity’s business; and

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

Since its issuance, Dynamex has stirred much speculation about its scope and the extent of its application. What is clear, however, is that the decision may be and, now for the first time, has been applied on a retroactive basis. Judge William Claster of the Orange County Superior Court was first on any California bench to issue a ruling grounded in Dynamex and apply its holdings retroactively in the Johnson v. Imperial Showgirls case.

In Johnson, a class of exotic dancers brought a Private Attorney General Act suit against Imperial Showgirls, an Anaheim-based nightclub at which they performed. The class of dancers alleged that they were misclassified as independent contractors. In turn, the dancers brought a PAGA action, alleging that Imperial Showgirls failed to pay them all wages due and in violation of California wage and hour laws.

In the heat of litigation, the parties filed various motions to exclude evidence for the court’s consideration. While their motions remained pending, the parties jointly requested that the court clarify the extent of Dynamex’s application to their wage and hour dispute. The court granted the request and, in doing so, became the first California court to expressly find that Dynamex can, and should be, applied retroactively.

The court pointed to the absence of constraints in Dynamex in order to conclude that the California Supreme Court did not intend for its decision to apply only on a prospective basis. From there, the court looked to the Supreme Court’s movement after issuing Dynamex to bolster its opinion. Specifically, the court observed that the Supreme Court declined to amend Dynamex to any extent. This gesture, according to the court, showed that the Supreme Court emphatically refused to incorporate new language that restricted Dynamex’s application to an exclusively protective basis.

The court considered both of these circumstances — the absence of express constraints on application and the Supreme Court’s refusal to amend its decision to include express constraints — as evidence that the Supreme Court intended Dynamex to apply both prospectively and retroactively. As the court articulated, “In light of the ‘general rule that judicial decisions are given retroactive effect’ (Newman, supra at 978), and because it is up to the Supreme Court to declare an exception to this rule (see Barr v. ADandS Inc. (1997) 57 Cal.App.4th 1038, 1053), this court will apply Dynamex retroactively.”

In so holding, the court refrained from extending Dynamex to resolving questions of joint employer status. The court looked to the 2018 Curry decision to steer its reasoning, which interpreted Dynamex to be limited to the issue of employee misclassification. As the Curry court articulated, “placing the burden on the alleged employer to prove that the worker is not an employee is meant to serve policy goals that are not relevant in the joint employment context.”[1]

Finally, Johnson clarified whether Dynamex could reach and be applied to PAGA claims, ones that are rooted in the California Labor Code rather than the Industrial Welfare Commission, or IWC, wage orders with which Dynamex grappled. Imperial Showgirls argued that the Supreme Court exclusively focused its analysis on IWC wage orders and thus left no room to assume that Dynamex could be extended further to the California Labor Code. The court disagreed. The court noted that the controlling wages orders were inextricably linked to particular sections of the Labor Code. These “inseparable ties,” as the court referred to them, prohibited an inference that Dynamex could not be applied to PAGA actions like the one at hand. Thus, the court additionally held that Dynamex may be applied to PAGA actions for their inextricable relation to the California Labor Code.

In an attempt to persuade the court otherwise, Imperial Showgirls’ additionally argued that, where multiple statutes informed the basis of the dancers’ PAGA action, the company was entitled to applying multiple tests to supplement the ABC Test. These multiple tests, Imperial Showgirls postured, would more effectively resolve whether the dancers were independent contractors or employees. Again, the court struck down Imperial Showgirls’ position. The court articulated that the proposition ran counter to Dynamex’s very purpose, namely to provide “greater clarity and consistency in analyzing (the) issue” of employee-independent contractor status. Moreover, the court reasoned, the ABC test governed all of the claims in Johnson because they were rooted in wage orders, which, in turn, tied back to the California Labor Code. Thus, applying a uniform test for claims arising under the same set of laws afforded the “clarity and consistency” Dynamex sought to implement.

Given Dynamex and at least the Johnson court’s willingness to expressly affirm Dynamex’s forward and backward reach, employers should be especially mindful of potential misclassification issues in the workplace. Businesses operating in gig economies, in particular, should regularly review their workers’ statuses to determine whether reclassification is necessary to avoid exposure under the ABC test. Given Dynamex’s significant implications for businesses and workers, such prophylactic measures should be embraced by companies, regardless of their size, scale or industry.

by Desi Kalcheva

This article was originally published on August 14. 2018 at Law360.com

 [1] Curry v. Equilon Enterprises (2018) 23 Cal.App.5th 289.