California Business Law: Retroactivity of Court Decisions and Dynamex

As we have written, in April 2018, the California Supreme Court changed the test for determining whether a worker is an “employee” or an “independent contractor.” The new rule essentially makes all workers “employees” unless strictly defined conditions are met. See Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (Cal. Supreme Court April 30, 2018).

This matters very much for any San Diego business that hires temporary workers or has involvement in what is called the “gig economy.” One question that many employers have asked is whether Dynamex applies to workers that were hired prior to the decision. Very likely, the answer is “yes.”

San Diego Business Law: Retroactivity of Court Decisions

The general rule in California is that court decisions are given retroactive effect. See Newman v. Emerson Radio Corp., 48 Cal.3d 973 (Cal. Supreme Court 1989). That is, if a new rule is established today, the new rule will apply to facts and circumstances that took place yesterday if/when a lawsuit is filed in the future. Retroactivity is also generally applied to pending cases. This general rule applies unless the California Supreme Court makes an exception, which the court has given itself the power to make. See Barr v. ACANDS Inc., 57 Cal.App.4th 1038 (Cal. App. 1st Dist. 1997).

In the Dynamex case, the California Supreme Court did NOT exercise its power to bar the retroactive effect of the decision. As such, at least one Superior Court judge had held that Dynamex will apply to claims related to past and pending employment/independent contractor cases. The case is Johnson v. VCG-IS, LLC, Case No. 30-2015-00802813-CU-CR-CXC (Sup. Court of Cal., Orange County July 18, 2018). See report here.

The issue is that case was whether exotic dancers working at an establishment called Imperial Showgirls in Anaheim, California should be classified as “employees” or as “independent contractors.” The case also presented the question of whether two different companies could be held liable under the joint employer doctrine. The dancers filed a class action against the two companies in 2015 alleging, among other things, various violations of California labor code provisions including:

• Failure to pay wages
• Failure to pay the minimum wage
• Failure to provide meal and rest breaks
• Failure to provide itemized and accurate wage statements
• Failure to keep adequate wage records of hours worked
• Improper deductions
• Failure to reimburse expenses
• Improper taking of tips and gratuities
• And more

If the dancers were/are classified as “employees,” then these alleged violations are actionable and could result in significant liability to the employer(s). By contrast, if the dancers are “independent contractors,” then these alleged violations are inapplicable.

On July 31, 2018, the judge did not decide the question. Rather, the court decided which test would be used: the old test or the new Dynamex test. The court held that the new Dynamex test would be used based on the fact that the Supreme Court did not preclude the normal rule that decisions are applied retroactively and to pending cases. This will likely help the dancers, since the Dynamex test is much more likely to result in them being deemed to be “employees.”

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses. Mr. Leonard can be reached at (858) 483-9200 or via email.

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