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Dynamex Applies Retroactively Says 9th Circuit: Businesses Now at Risk Back to 2014

The US Court of Appeals for the Ninth Circuit recently held that the Dynamex decision applies retroactively. See news report here.

Dynamex was decided in April 2018 and changed the rules on how California businesses are to classify workers as “employees” or “independent contractors.” The Dynamex decision is and was a marked change in the law. Since last year, there has been an ongoing legal debate about whether Dynamex would be applied retroactively. See one of our discussions here. If the decision were applied retroactively, then San Diego businesses would potentially be at risk to lawsuits and California governmental actions and lawsuits for misclassifications going back as far as 2014. The Ninth Circuit just held that Dynamex is to be applied retroactively in the long-running case of is Vazquez v. Jan-Pro Franchising International, Inc., Case No. 17-16096 (US 9th Cir., May 2, 2019).

In holding that Dynamex is to be applied retroactively, the court focused on two issues — California law and the due process rights of the employer. With respect to the first issue, the court stated that under California law, all cases are considered to have retroactive effect unless the California Supreme Court says otherwise. With respect to Dynamex, the California Supreme Court did not hold that non-retroactivity should apply. Indeed, the parties in the Dynamex case sought to have the case reheard so the retroactivity issue could be resolved. The California Supreme Court declined to rehear the case.

With respect to due process, the issue is about fairness. When a significant new law is announced by a court because it imposes a new duty or exposes a business to significant new liability, it would be unfair to impose those duties and potential liabilities based on past acts and/or behavior. This is particularly true when businesses act in good faith on what is supposed to be settled law. In considering this question, the Ninth Circuit held that there was no undue unfairness in applying Dynamex retroactively. First, the court held that the new test articulated in Dynamex — the ABC test — was not that large of a change in California employment law. The court quoted the California Supreme Court’s statement that the ABC test was “faithful” to the history of California’s employment classification law “and to the fundamental purpose of the wage orders.”

Furthermore, the court dismissed concerns that the newly imposed duties and potential liabilities on California business were unfair since the purpose of the labor laws was to ensure compensation for workers and to ensure they can provide for themselves and their families. Labor laws are justified — including the ABC test — on the grounds that substandard employment practices can be a form of unfair competition that hurts businesses specifically and the labor market more generally. Finally, the court noted that Wage Orders and labor laws in general benefit society at large. As the court stated, without labor laws, “the public will often be left to assume responsibility for the ill effects to workers and their families resulting from substandard wages or unhealthy and unsafe working conditions.” Balancing the various considerations, the court held that businesses were not unduly prejudiced by applying Dynamex retroactively. And, on the balance, the benefits for workers, society at large, and for competition outweighed the disadvantages for specific employers.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the last four years. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and all other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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