California Supreme Court Rules Dynamex Decision Is Retroactive

On January 14, the California Supreme Court ruled unanimously that its landmark Dynamex decision instituting the “ABC Test” for worker classification is retroactive. The high court wrote, “In concluding that the standard set forth in Dynamex applies retroactively — that is, to all cases not yet final as of the date our decision in Dynamex became final — we rely primarily on the fact that Dynamex addressed an issue of first impression. It did not change a settled rule on which the parties below had relied.”

The Court rendered its decision in response to a certified question of state law by the federal Ninth Circuit Court of Appeals in Vasquez v. Jan-Pro Franchising International. The Supreme Court essentially determined that it was not unfair or unjust in making the decision applying to pending cases when the decision was issued, and that retroactivity is the general rule, so its decision is consistent with that general rule.

Some would disagree with that determination as both businesses and contractors had, in fact, relied upon nearly three decades of Supreme Court precedent found in the Borello factors. The Borello factors were established in the 1989 case of S.G. Borello & Sons v. Superior Court, which was a workers’ compensation case. Dynamex, on the other hand, dealt with interpreting the Industrial Welfare Commission Wage Orders.

The Court said that it was addressing this issue for Wage Order purposes for the first time and therefore the general retroactivity rule should apply. “Particularly because we had not previously issued a definitive ruling on the issue addressed in Dynamex, we see no reason to depart from the general rule that judicial decisions are given retroactive effect.”

In addition, the Court said businesses were on notice that the Court would likely adopt an ABC Test. “Indeed, twice in the last decade, we signaled that the test for determining whether a worker should be classified as an employee or independent contractor in the wage order context remained an open question.” While this is an accurate characterization, the Borello test was the only formal guidance available to businesses and contractors.

More importantly, state agencies charged with enforcing the law have relied upon the Borello factors for the past three decades. However, the Court did not view it this way. “In resolving that issue, our decision in Dynamex did not overrule any prior California Supreme Court decision or disapprove any prior California Court of Appeal decision. Thus, the well-established general principle affirming the retroactive application of judicial decisions interpreting legislative measures supports the retroactive application of Dynamex.” Again, an accurate statement, but what other decision guided state agencies, businesses and individuals other than the Borello case?

The Supreme Court did not accept the business’ reliance argument. “By ‘expressly declin[ing] to decide the issue, thereby reserving our ultimate judgment on the question for some later date,’ we ‘highlighted the fact that this question remained to be decided by this court.’ Thus, defendant’s reasonable reliance argument is unconvincing.”

Here, again, the reliance is not on the court’s reluctance to provide clear guidance. The reliance is on the enforcement agencies of the state – Division of Labor Standards Enforcement (i.e., the Labor Commissioner) and Department of Industrial Relations – and their use of the Borello factors. That is why businesses were up in arms at the release of the Dynamex decision because they were faced with an entirely new, stringent worker classification test that had changed the past 30 years of law.