California's "Dynamex" Test for Independent Contractors Applies Retroactively

Author: Michael Cardman, XpertHR Legal Editor

May 6, 2018

The worker-friendly test for independent contractors established by the California Supreme Court's 2018 Dynamex ruling can be applied retroactively, a federal appellate court has ruled.

In Vazquez v. Jan-Pro Franchising Int'l, Inc., the 9th Circuit Court of Appeals noted that it is "basic in our legal tradition" for court decisions to apply retroactively. It said:

Given the strong presumption of retroactivity, the emphasis in Dynamex on its holding as a clarification rather than as a departure from established law, and the lack of any indication that California courts are likely to hold that Dynamex applies only prospectively, we see no basis to do so either.

The 9th Circuit also rejected claims that retroactive application of the Dynamex test would violate the employer's constitutional right to due process.

Under the "ABC test" established by Dynamex, a worker will be considered an employee under California's wage orders - which govern minimum wages, overtime, show-up time / reporting time requirements, meal and rest breaks and other working conditions - unless the hiring entity can show that the worker:

  1. Is free from control and direction of the work, both under the contract and in fact;
  2. Performs work that is outside the usual course of its business; and
  3. Is customarily engaged in an independently established trade, occupation or business.

The Dynamex standard contrasts sharply with an opinion letter released last week, in which the US Department of Labor concluded that service providers for a gig economy company are independent contractors, not employees, under the federal Fair Labor Standards Act. The difference underscores the importance of following both state and federal laws when classifying workers.