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California's ABC Test For Independent Contractor v. Employee Disputes Found to Apply Retroactively


Vazquez v. Jan-Pro Franchising International, Inc. - Ninth Circuit Court of Appeals


Facts:  A putative class action was filed several years ago against Jan-Pro Franchising International, Inc. ("Jan-Pro"), a janitorial cleaning business.  The suit alleged that Jan-Pro had developed a "three tier" franchising model to avoid paying its janitors minimum wage and overtime by allegedly misclassifying the workers as independent contractors rather than employees.  The claim was severed with the Northern District of California hearing a portion of the claim against Jan-Pro.


Holding:  The Ninth Circuit recognized that the California Supreme Court has recognized that it "is basic in our legal tradition" that "judicial decisions are given retroactive effect."  When a federal appellate court in California applies intervening state supreme court rulings retroactively, this retroactive application applies even if the judgment was entered prior to the ruling from the California Supreme Court.  Granted, there are exceptions, such as "when a judicial decision changes a settled rule on which the parties below have relied."  The Ninth Circuit Court of Appeals has found "[p]articular considerations relevant to the retroactivity determination include the reasonableness of the parties' reliance on the former rule, the nature of the challenge as substantive or procedural, retroactivity's effect on the administration of justice, and the purposes to be served by the new rule."  In this case, Jan-Pro argued the case should be remanded to allow the district court to determine how much Jan-Pro relied on pre-Dynamex law before deciding whether to retroactively apply Dynamex.  On the other side of the coin, it was argued a remand was not necessary as California courts have already held that Dynamex applies retroactively...thus the Ninth Circuit was obliged to follow those courts' findings.

The Ninth Circuit was not convinced it should remand the case to district court for these reasons.  As the Court wrote, "it would make little sense for a court to assess the retroactive effect of Dynamex by developing a factual record concerning a party's reliance on previous law."  Of note, the Court pointed out that the California Supreme Court had previously denied a petition (without comment) by an amicus to modify the Dynamex decision for "Clarification That Independent Contractor Test is Prospective Only."  The California Supreme Court's denying of that petition was held to strongly suggest that the usual retroactive application should apply to the newly announced ABC test.  As well, the Court noted that lower courts in California had already begun applying the ABC test retroactively.

Upon reaching this conclusion, the Ninth Circuit noted it would only avoid retroactively applying Dynamex if it could be shown there was a due process violation in doing so.  As the ABC test was created by the judiciary, rather than the legislature, the Court recognized "even more deference is owed to judicial common-law developments, which by their nature must operate retroactively..."  In this instance, retroactively applying Dynamex was not found to be arbitrary nor irrational.  Applying Dynamex retroactively was held to protect workers in the janitorial industry as a whole by ensuring compensation for them and their families. 

Judgment:  The Ninth Circuit Court of Appeals denied a request to remand the case to the district court on the grounds that the California Supreme Court's newly created ABC test could be lawfully applied retroactively to an independent contractor v. employee dispute, without any due process violation existing as to the retroactive application.

The Takeaway:  That sound you hear is the collective air being taken out of the room for employers in California.  Last year's Dynamex case was groundbreaking in so much that it established a clear cut standard for determining how to resolve independent contractor v. employee disputes, with a decidedly favorable tilt for finding workers to be employees. With the Ninth Circuit Court of Appeals issuing its ruling here and affirming that the retroactive application of the ABC test is lawful, I think we are likely to see a string of California cases in the coming months with favorable rulings for workers.

Majority Opinion Judge:  Judge Block

Date:  May 2, 2019

Opinion:  https://www.bloomberglaw.com/public/desktop/document/GERARDOVAZQUEZGLORIAROMANandJUANAGUILARonbehalfofthemselvesandall?1557170267

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