The gift that keeps on giving, the California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court is getting a fresh look to determine whether it applies retroactively.  For the uninitiated, the Dynamex decision upended the legal analysis for determining whether a worker is an employee or an independent contractor.  Since then, Dynamex has continued to evolve and complicate business relationships with workers.

Red balloons on blue sky spelling "Guess"

As if to demonstrate just how complicated things can get, the 9th Circuit has taken it upon itself to flip-flop on the paramount question of whether Dynamex applies retroactively.  On May 2 of this year, the 9th Circuit issued a ruling stating that despite the overhaul of the independent contractor analysis, Dynamex applies retroactively.  Two months later, on July 22, the 9th Circuit withdrew its decision, and advised that it will certify the question to the California Supreme Court.  In other words, the 9th Circuit is saying it jumped the gun, and California should have decided this issue.

Retroactivity is no small matter.  The Dynamex independent contractor test, referred to as the “ABC test,” casts a much larger net than the previously applied test, sweeping in many thousands of workers and classifying them as employees when they would otherwise have been classified as independent contractors.  If the ABC test is applied retroactively, then all of these employees may have a newly-ripened misclassification lawsuit.

Although no California courts have decided the issue of whether Dynamex should be applied retroactively, the infamously employee friendly California courts have primed the issue.  In Garcia v. Border Transportation Group, LLC, the court of appeal stated in a footnote, without deciding the issue, that:  (1) the general rule is that judicial decisions have retroactive effect; (2) there is an exception where the parties reasonably relied on the previously existing law; (3) the Dynamex court declined a request to apply its ruling only prospectively; and (4) that Dynamex came as no greater surprise than other decisions that routinely apply retroactively.  In other words, while retroactivity is an open issue, the courts are leaning towards applying the ABC test retroactively.

While the California Supreme Court mulls over this issue, employers would be prudent to take proactive measures to reduce liability, including by auditing and updating all worker relationships under the new ABC test.  Employers should keep abreast as this issue unfolds (or subscribe to this blog for more updates).