Worker Classification Landscape Altered Again

May 13, 2019

The Ninth Circuit has issued a crushing blow to employers and companies when it decided that recent restrictions on independent contractors would apply retroactively. On May 2, 2019, the Ninth Circuit in Vazquez v. Jan-Pro Franchising International, Inc. decided that the ruling in Dynamex Operations West, Inc. v. Superior Court should be applied retroactively. The Dynamex decision made it more difficult for a California employer to classify a worker as an independent contractor unless it met a strict "ABC test." Employers are required to prove that a worker is (A) free from the control and direction of the company in connection with the performance of the work, both under the contract and in fact, (B) the worker performs work that is outside the usual course of the company'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 for the company.

After Dynamex, the California Court of Appeals clarified in Garcia v. Border Transportation Group that the ABC test only applies to wage issues and should not be applied to non-wage disputes.

This Ninth Circuit opinion will undoubtedly create a wave of major and potentially devastating implications for California employers that utilize independent contractors, especially gig economy companies with business models built around a more flexible prior standard. While the 9th Circuit opinion is instructive, it remains to be seen whether the California Supreme Court will also find that the Dynamex opinion is retroactive. However, in an attempt to further solidify the application of this stricter test for California workers, the California legislature is trying to codify the Dynamex decision into law. Although the bill would exempt certain occupations, gig economy workers are not currently among those included in the exemptions. As the bill moves through the Legislature, the list of exempted occupations could grow.

Given the current state of retroactive application, employers should re-visit existing independent contractor agreements to verify that they, in fact, conform to the restrictions in Dynamex. Consult with legal counsel to discuss current worker classifications under the new ABC test and understand the risks and exposures that you may face for past worker classifications in light of this retroactive application.