9th Cir. withdraws opinion that retroactively applied California's independent contractor test

UPDATE: July 22, 2019: The 9th U.S. Circuit Court of Appeals withdrew its May opinion Monday. In an order, it said "a revised disposition and an order certifying to the California Supreme Court the question of whether [Dynamex] applies retroactively will be filed in due course."

Dive Brief:

California's new "ABC test" that generally assumes workers are employees, not independent contractors, applies retroactively, the 9th U.S. Circuit Court of Appeals has determined (Gerardo Vazquez, et al. v. Jan-Pro Franchising International, Inc. No. 17-16096 (9th Cir. May 2, 2019)). The federal three-judge panel vacated and remanded a district court's decision to grant summary judgment for a business using a franchising model that considered workers independent contractors; it instructed the lower court to use the test devised by the California Supreme Court last year in Dynamex Operations West, Inc. v. The Superior Court of Los Angeles County (No. S222732).
The defendant in Vazquez, Jan-Pro, organizes commercial cleaning franchises throughout the U.S., according to court documents. The plaintiffs "were unit franchisees who purchased their franchises from two different regional master franchisors," the judges said. Under Jan-Pro's three-tier model, "regional master franchisors submit bids for cleaning services to unit franchisees" who may decide whether to take the bid and who do the cleaning, according to the opinion. All agreements between Jan-Pro and plaintiffs describe the unit franchisee position as an independent contractor position, the judges said.
The panel held that "California law calls for the retroactive application of Dynamex" and said that "applying Dynamex retroactively was consistent with due process." The judges specified that, as it reconsiders Vazquez, the district should use all three components of the ABC test.

Dive Insight:

When the California Supreme Court first adopted the ABC test about a year ago, attorneys cautioned employers to assess their relationships with any worker they considered an independent contractor to determine whether that status aligned with all three parts of the new definition. The test assumes a worker is an employee unless the hiring organization can establish: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such 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 for the hiring entity.

Now that the federal appeals court for the region has deemed it appropriate to apply the standard retroactively, California employers may want to brace themselves. "This strong decision will help workers who are challenging those business models," the San Francisco Chronicle reported Lichten & Liss-Riordan Partner Shannon Liss-Riordan saying. "It reinforces that under California law, workers who provide services in a company's usual course of business are that company's employees for wage law purposes." Katherine Catlos, a labor and employment partner at Kaufman Dolowich & Voluck, agreed that the ruling is "significant," but said in a email to HR Dive that it is likely to be appealed.

The judges' opinion generates more activity around the independent contractor issue as businesses across the nation increasingly adopt such arrangements and courts grapple with how parties should properly deploy them. The U.S. Department of Labor (DOL), for example, recently approved of an unnamed company's gig worker arrangement in an opinion letter, saying that the details of how the business used the workers aligned with its six-factor test. As states like California adopt more rigorous independent contractor tests, however, workers themselves may expect a different kind of treatment, according to a report from MBO Partners. Ninety percent of contingent workers want to be treated like team members, the study found.