Mcle Self-study: Vazquez's Retroactivity Holding Creates Unintended Consequences for Independent Contractors

• Publication year: 2021
• Author: By Paul Marron and Steven C. Rice

MCLE Self-Study: VAZQUEZ'S RETROACTIVITY HOLDING CREATES UNINTENDED CONSEQUENCES FOR INDEPENDENT CONTRACTORS

By Paul Marron and Steven C. Rice

Paul Marron founded Marron Lawyers in 1995. The Firm defends Final Mile companies nationally in misclassification of independent contractor class actions and regulatory matters. Mr. Marron leads a nine-lawyer team. The Firm has tried to verdict wins in court and regulatory misclassification cases for groups as large as 1500 drivers throughout the United States. He represented Taxicab Paratransit Association of California as amicus curiae on behalf of defendant and respondent in Vazquez v. Jan-Pro Franchising Int'l. Steven C. Rice has been a civil litigator and trial lawyer in California since 1983. and has been with Marron Lawyers since 2008. He represents numerous companies involved in the transportation of passengers and goods, and he has briefed and argued misclassification in appellate courts. Mr. Rice represented Taxicab Paratransit Association of California as amicus curiae on behalf of defendant and respondent in Vazquez v. Jan-Pro Franchising Int'l. He received his B.A. from Harvard University and J.D. from UC Davis. The authors can be contacted at srice@marronlaw.com, (562) 432-7422.

In its limited ruling in Vazquez v. Jan-Pro Franchising International,¹ the California Supreme Court ordered its Dynamex ABC test² to be applied retroactively to claims alleging misclassification of independent contractors under state wage orders. The Court thus "doubled down" on its position that this new test was simply an interpretation of the words "suffer or permit to work," as used in the orders. At the same time, the Court paradoxically acknowledged that this language had not changed for "more than a century," and had never before been held to require deviation from a standard "common law" analysis.³

Businesses now must face liabilities and penalties for not classifying contractors according to a test that the Court had not yet devised. Even more significantly for the long term, the Court missed an opportunity to address the inappropriately broad application of its ABC test, including the Ninth Circuit's own Vazquez decisions,⁴ to long-established, entrepreneurial business systems, including franchises. Instead, the Court chose to "suffer or permit" misapplications which could make it increasingly difficult for truly entrepreneurial individuals and businesses to escape the fate of being deemed mere "employees."

THE DYNAMEX "ABC TEST" HAS NOT SIMPLIFIED THE LAW

In Vazquez, the Court addressed a "loose end" left unresolved since its 2018 Dynamex decision first announced a seismic change in determining employee status for purposes of wage-order claims. For pending misclassification claims under state wage orders, the new California "ABC test"-based on a Massachusetts statute-was now mandated.⁵ This test replaced decades of carefully developed precedent, drawn and evolved from the "common law tradition," previously applied in nearly all non-employee misclassification cases. In 1989, this body of law was painstakingly analyzed by the Court in its oft-cited opinion in S.G. Borello & Sons v. Dep't of Indus. Relations.⁶

While Dynamex limited its ABC test to wage-order claims, the Court's reference to the test as providing "greater clarity and consistency" and being "clearer" and "simpler" than Borello,⁷ invited legislative expansion of the test into other areas. The Legislature and state agencies almost immediately took up the call to apply the ABC test more widely. However, the law did not become simpler or clearer. The legislative process created numerous exceptions (with complex and vague standards for qualifying) through Assembly Bill 5 (AB 5) and other statutory changes.⁸ Meanwhile, app-based transportation companies dependent on drivers using personal vehicles (e.g., Uber, Lyft, DoorDash) companies that had become primary "targets" during the political push to enact AB 5⁹-successfully used the initiative process to avoid application of the ABC test to their operations, protecting their drivers' status as "independent contractors."¹⁰

Existing lawsuits were amended in response to Dynamex, and litigation strategies adjusted to incorporate the new test. Companies which had already established they were not employers under Borello were now forced to defend their classifications under ABC. Jan-Pro Franchising was one such company, embroiled in such a lawsuit.¹¹ Mr. Vazquez, hired by a Jan-Pro sub-franchisee, sought to bring a class action alleging wage and hour violations dependent on "employee" status vis-à-vis the franchisor (Jan-Pro). Before Dynamex, Jan-Pro had obtained summary judgment from the District Court under the Borello standard (read in light of the Supreme Court's franchise analysis in Patterson v. Domino's Pizza).¹² On appeal, after initially deciding that the new test required reversal and reconsideration, the Ninth Circuit panel quickly withdrew that decision (later partially reinstating it), while certifying to the Supreme Court the issue of whether the test was to be applied retroactively.

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THE SUPREME COURT'S CONSIDERATION WAS LIMITED TO WHETHER DYNAMEX WAS "RETROACTIVE"

Dynamex avoided discussing whether its holding applied retroactively. The Court even rejected a specific request to address the issue via rehearing.¹³ There was reason to hope that this approach signaled the Court's willingness to "wait and see" if its bright-eyed prediction of "clarity and consistency" would unfold before broadly applying the new test. Then Vazquez placed the issue squarely before the Court. Perhaps the Court would acknowledge that after three chaotic years, the ABC test had failed to bring clarity, simplicity, or consistency to the state's classification of...