Independent Contractor Test Applies Retroactively

Last week, a federal appeals court ruled that the test for determining whether a worker is an independent contractor, established by last year’s California Supreme Court ruling, applies retroactively.

The May 2 decision of the Ninth Circuit Court of Appeals means the independent contractor test established in Dynamex Operations West v. Superior Court (April 30, 2018) will be applied retroactively to federal cases predating the Supreme Court ruling, as well as cases going forward.

Coalition Seeking Change

Removing the retroactive application of the Dynamex decision is among the amendments the California Chamber of Commerce and a broad-based coalition have been seeking to pending legislation that makes a start toward restoring flexibility for numerous individuals since the Dynamex decision upended the test for determining who is an independent contractor.

The CalChamber and coalition support if amended AB 5 (Gonzalez; D-San Diego), which exempts certain industries/professions (doctors, insurance agents, securities brokers, and direct sellers) from the application of the Dynamex decision.

The CalChamber and coalition appreciate the recognition in AB 5 that the Dynamex decision is not one size fits all, and agree the professions identified in the May 1 version of AB 5 should be exempted.

However, the Legislature should not stop with selecting just a few professions and not others similarly situated. The CalChamber and coalition are seeking additional amendments that provide a more progressive and holistic approach to the application of Dynamex that reflects today’s modern workforce.

In an April 29 letter to the Assembly Appropriations Committee, the CalChamber and coalition request:

• a broader exemption for professionals;

• a broader exemption for individuals who, like direct sellers, prefer to control their own schedules;

• a business-to-business exemption; and

• the ability to subcontract for short-term projects.

Dynamex Test

Under Dynamex, the court presumes that a worker is an employee unless an individual satisfies all three factors of the ABC Test:

A. That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the 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.

The “B” prong of the test is the most problematic because many independent contractors work in the same line of business as the hiring entity.

Ninth Circuit Decision

A three-judge panel of the federal appellate court ruled that Dynamex applies retroactively in the case of Vazquez v. Jan-Pro Franchising International, Inc.

In Vazquez, workers at Jan-Pro, a janitorial cleaning business, filed minimum wage and overtime claims, saying they had been misclassified as independent contractors.

The federal district court dismissed the claims, but the workers appealed. The appellate court returned the case to the district court to be considered in light of the Dynamex decision and the ABC Test, even though the Vazquez case had been decided by the trial court before the Dynamex ruling.

Action Needed

The CalChamber is urging members to ask their Assembly and Senate representatives to encourage the author of AB 5 to work with the business community to further amend her bill to protect the opportunity for millions of Californians to maintain their careers.

AB 5 is awaiting action by Assembly Appropriations.

Staff Contact: Laura Curtis

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Laura E. Curtis served as a CalChamber policy advocate from December 2017 to March 4, 2020. She specialized in labor and employment, workers’ compensation, and regulatory reform issues. Before joining the CalChamber policy team, she was a labor and employment attorney counseling clients on subjects including wage-and-hour disputes, harassment, discrimination, retaliation, Private Attorneys General Act (PAGA) claims, and administrative agency compliance. Curtis holds a B.A. in communications with a minor in political science from the University of California, San Diego. She earned a J.D. from Santa Clara University School of Law, where she worked on the International Law Journal. See full bio.