Another Decision Bites the Dust… Ninth Circuit Retracts Dynamex Retroactive Decision

The Ninth Circuit provided a (temporary) sigh of relief for many organizations who work with independent contractors.

Below is a Brief Recap:

April 2018: Dynamex West, Inc. v. Superior Court:

The California Supreme Court abandoned the multi-factor test and adopted the “ABC Test,” to determine whether a worker should be classified as an employee or an independent contractor. The “ABC Test” imposes a tougher legal standard in classifying independent contractors and places the burden on the employer to prove that the “independent contractor” performs work that is “outside the usual course” of the employer’s business. The Court held that all workers in California are presumed to be employees subject to the Industrial Wage Orders unless the worker meets all three elements of the ABC Test:

1. The worker is free from control & direction of the hiring entity in connection with the performance of work
2. The worker performs work that is outside the usual course of the hiring entity’s business; and
3. 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

May 2019: Vazquez v. Jan-Pro Franchising Int’l

Since the California Supreme Court did not address whether the “ABC Test” would apply prospectively or retroactively, the issue was presented to the Ninth Circuit. The Ninth Circuit ruled that the test applies retroactively, meaning that businesses would have the burden of showing workers classified as independent contractors satisfy all three elements of the ABC Test prior to the Dynamex Decision. The Court’s decision caused concern and confusion since the Court’s decision created liability exposures for organizations, especially those who heavily rely on independent contractors.

Now for a temporary sigh of relief…

In July, the Ninth Circuit withdrew their Opinion in Vazquez and indicated that it will ask the California Supreme Court to answer the question whether the Dynamex decision applies retroactively. This is a temporary victory for businesses. For the time being, federal district courts are no longer bound by Vazquez’s holding and can consider the question of retroactivity once again.

If your organization utilizes independent contractors, we recommend that you review your independent contractor arrangements and/or agreements with your employment attorney. Insurance Policies generally do not cover independent contractors, because they should be carrying their own insurance. It is best practice to request that your independent contractors provide you with a certificate of insurance and add your organization as an additional insured. Employment Practice Liability Insurance (EPLI) Coverage does not provide coverage for most wage and hours claims, however, some insurance carriers provide a defense sublimit. Let us know if you have any questions regarding independent contractors or would like us to provide you with an EPLI quote. We are here to help!