August 29, 2018
Compliance Matters
California Judge Gives Broad Retroactive Effect To State's Landmark Independent Contractor Ruling

In May, we wrote about the California Supreme Court's landmark Dynamex ruling, which upended decades of thinking about who could be legally paid as an independent contractor under California's Wage Orders. Two questions the high court did not answer: (i) whether the case would be applied retroactively? and (ii) whether the decision applied to all wage and hour cases, or just those under the state's Wage Orders?

Recently, an Orange County Superior Court judge handed down an order in which he decided that Dynamex does have retroactive effect, and that the case will be broadly applied beyond just those cases involving alleged violations of the Wage Orders.

The case was brought by two exotic dancers working at a club in Anaheim called Imperial Showgirls. The dancers claim they are employees, and that the club's owner violated California wage and hour laws by misclassifying them as independent contractors.

The dancers filed their lawsuit back in 2015. At that time, California courts routinely applied a more flexible 1989 standard for deciding whether a worker is an independent contractor. That standard focused on a long list of factors, the most important of which was the degree to which the business entity retaining the contractor maintained control over the details of the contractor's work.

In Dynamex, the California Supreme Court announced a new "ABC test," under which a worker is presumed to qualify as an employee, unless the "hiring entity" proves each of the following three elements:

(A) the worker is free from the entity's "control and direction" in connection with performance of the work, both as a matter of contract language and "in fact";

(B) the worker performs work "outside the usual course" of the hiring entity's business; and

(C) the worker "is customarily engaged" in an independent business, occupation, or trade of the same nature as the work he or she performs for the hiring entity.

In the exotic dancer case, the judge said that the Dynamex should be applied retroactively unless the California Supreme Court had said otherwise when it issued its Dynamex ruling, which it did not do.

The judge also ruled that Dynamex should apply to a broader range of wage-hour claims than just those being brought under the Wage Orders, including claims under California's Private Attorney General Act (PAGA) and other claims under the Labor Code.

On the other hand, the judge refused to apply Dynamex to answer whether the club's owner and a consulting company could be liable as "joint employers." The judge noted a recent Court of Appeal decision (Curry v. Equilon Enterprises) ruled that Dynamex does not apply to the "joint employer" issue. The judge also suggested that cases brought under workers' compensation and unemployment compensation laws also would not be decided under the Dynamex standard.

Although other California trial courts are not bound by this judge's ruling, it appears likely that many courts will come to the same conclusion.

To be sure, the California Supreme Court made it much harder for any California business to legally classify a service provider as an independent contractor. Any business that routinely engages independent contractors would be wise to review the bona fides of the relationship before a suit is filed for misclassification. 

If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at (818) 508-3700, or visit us online at .

John J. Manier
Richard S. Rosenberg
Ballard Rosenberg Golper & Savitt, LLP 

15760 Ventura Blvd.
Eighteenth Floor
Encino, CA 91436
(818) 508-3700

6135 Park Drive South
Suite 510
Charlotte, NC 28210
Matthew Wakefield:
(704) 846-2143 


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