Dynamex Applies to Franchisors and Is Retroactive:  The Ninth Circuit Weighs in

All companies want to reduce their labor costs.  Unfortunately, some resort to classifying their workers as independent contractors when they really should be classified as employees.  Among other issues, that misclassification robs the workers of critical protections under the law:  For example, many wage and hour laws do not apply to independent contractors.

Last year, in Dynamex Ops. v. Superior Court (2018) 416 P.3d 1, the California Supreme Court issued a strong opinion in favor of California’s workers.  Dynamex adopted the “ABC test” for determining whether workers are employees or independent contractors under the California wage orders.  Now, in Vasquez v. Jan-Pro Franchising Int’l (May 2, 2019), the Ninth Circuit Court of Appeals has gone further, approving the ABC test, holding that Dynamex applies retroactively, and applying it to franchise relationships.

In Vasquez, the Court first reviewed the holding of Dynamex:  Under the ABC test, a hiring entity must prove three things in order to carry its burden of showing that a worker is properly classified as an independent contractor:  (A) that the worker is free from the control and direction of the hiring entity, both under contract and in fact; (B) that the worker performs work outside of 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 ABC test is much more difficult for employers to meet than the so-called Borello test, which had been developed for non-wage and hour claims in the years prior to Dynamex.

A number of California courts have already found that Dynamex applies retroactively.  See, e.g, Garcia v. Border Transp. Grp. (2018) 28 Cal. App. 5th 558.  The Ninth Circuit agreed with these decisions, and held that a retroactivc application of Dynamex is consistent with due process for a number of reasons:

It respects the California Supreme Court’s concerns.

It ensures that the workers can provide for themselves and their families.

It means that California will not be burdened with supporting the workers who are paid substandard wages.

And it places liability on the business entity that created the business structure at issue.

Finally, in what may be the most critical part of the opinion, the Court rejected Jan-Pro’s argument that the ABC test should be modified to reflect the fact that there were franchises involved.  On this issue, the district court had modified the test for whether the workers were employees by requiring  the plaintiffs had to show that Jan-Pro directly or indirectly exercised control over their activities or had the right to control their day-to-day activities.

The Ninth Circuit rejected this approach, holding that the franchise context does not alter the Dynamex analysis.  Accordingly, the ABC test applies with equal force to franchises.  The Court then reviewed other decisions in which top-level franchisors have been held to be employers.

Vasquez ensures that corporations cannot evade wage and hour laws through a complicated franchise scheme.  It is a critical case because it broadens the applicability of the ABC test, which will only benefit California’s workers.

If you have a question about whether you are properly classified as an independent contractor in your workplace, please feel free to contact Hunter Pyle Law for a free and confidential initial intake process.  We can be reached at (510) 444-4400 or inquire@hunterpylelaw.com.