The California Supreme Court’s Dynamex decision — which adopted the tougher ABC test for determining independent contractor misclassification — can be applied retroactively, the US Court of Appeals for the Ninth Circuit ruled in an opinion released last week.
Its opinion comes in the lawsuit Vazquez v. Jan-Pro Franchising International, which the Ninth Circuit sent back to the district court.
“The decision confirms that companies relying heavily on independent contractors, staffing agencies or franchisees should closely analyze their workforce to determine whether or how the relocation of duties can reduce the risk of costly litigation,” according to a post from attorney Pablo Orozco of law firm Nilan Johnson Lewis.
Katherine Catlos, an attorney with Kaufman Dolowich and Voluck LLP in San Francisco, said the opinion dealt a blow to employers but that it will likely be appealed. However, the case is informative for all companies that use independent contractors, including those in the gig economy, Catlos said.
The Jan-Pro lawsuit started in 2008 in Massachusetts, according to the court’s opinion. At that time, a third-tier franchisee claimed the franchise system was in place to avoid paying janitors minimum wage and overtime compensation by misclassifying them as independent contractors.
Jan-Pro organizes commercial cleaning franchises throughout the US, according to the Ninth Circuit’s opinion. However, Jan-Pro’s franchise model uses intermediary “master franchisees” who sell its business plans to individual unit franchisees: the third-tier franchisees, who do the actual cleaning.
The Ninth Circuit’s opinion involved unit franchisees in California, whose case had been separated from franchisees in other states.
“By applying Dynamex retroactively, we ensure that the California Supreme Court’s concerns are respected,” according to the opinion. “Besides ensuring that Plaintiffs can provide for themselves and their families, retroactivity protects the janitorial industry as a whole, putting Jan-Pro on equal footing with other industry participants who treated those providing services for them as employees for purposes of California’s wage order laws prior to Dynamex.”