Class & Collective Action Group Newsletter

Key Issue

Whether the California Supreme Court's decision in Dynamex Ops. W. Inc. v. Superior Court,1 which set standards for differentiating employees from independent contractors, applies retroactively.

Background

In 2008, plaintiffs from a number of states filed a proposed class action in the District Court for the District of Massachusetts alleging that Jan-Pro Franchising International developed a three-tier franchising model to avoid paying its janitors minimum wages and overtime compensation by misclassifying them as independent contractors. The claims of the California plaintiffs were eventually severed and sent to the District Court for the Northern District of California, which granted summary judgment in favor of Jan-Pro in May 2017.2 While this case was proceeding, in a separate test case, affirmed on other grounds on appeal, the Massachusetts court ruled in favor of Jan-Pro.3

Separately, in April 2018, the California Supreme Court held in Dynamex that to prove an individual is an independent contractor, rather than an employee, the hiring entity must show: "(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside 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 for the hiring entity." 4

In May 2019, on appeal from the District Court's decision, the Court of Appeals for the Ninth Circuit held that the Dynamex decision applied retroactively, and thus the final judgment in Jan-Pro's favor in the Massachusetts case was not entitled to preclusive effect.5 Specifically, the court pointed to California's strong presumption of retroactivity, the Dynamex court's characterization of its decision as a clarification rather than a departure from established law, and the lack of indication that California courts would be likely to hold that the decision only applied prospectively. Jan-Pro then filed a request for rehearing.

Decision

On July 22, 2019, the Ninth Circuit issued an order withdrawing its May 2019 opinion in JanPro and announcing that it would file an order certifying to the California Supreme Court the question of whether Dynamex applies retroactively.6

Thoughts & Takeaways

California employers will see their risk of liability of worker misclassification lessen significantly if the California Supreme Court rules that Dynamex does not apply retroactively. Meanwhile...