In an unexpected turn of events, the Ninth Circuit U.S. Court of Appeals recently vacated its decision in Vazquez v. Jan-Pro Franchising International . As previously reported, [ link ] the Ninth Circuit held in Vasquez that the California Supreme Court's landmark decision in Dynamex Operations West, Inc. v. Superior Court , 4 Cal. 5th 903 (2018), which created a new independent contractor test, applies retroactively. However,  the Ninth Circuit has now withdrawn that opinion and indicated that it will certify the question of whether Dynamex applies retroactively to the California Supreme Court. Essentially, the Ninth Circuit will ask the California Supreme Court, the final arbiter of California law, to decide whether its decision in Dynamex should be applied retroactively.

The Dynamex Decision

As previously reported, in Dynamex , the California Supreme Court announced a new test called the “ABC test,” for deciding whether a worker is an independent contractor or an employee covered by California’s Wage Orders. Under this "ABC test," a worker is presumed to qualify as an employee, unless the "hiring entity" proves all three of the following 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.

The Vasquez Case

The Vazquez lawsuit involves a class action filed in 2008. The plaintiffs claimed that the defendant, Jan-Pro, is "a major international janitorial cleaning business" which "developed a sophisticated 'three-tier' franchising model to avoid paying its janitors minimum wages and overtime compensation by misclassifying them as independent contractors." On May 2, 2019, the Ninth Circuit ruled that the holding in Dynamex was meant to be applied retroactively, vacated the decision of the District Court dismissing the case in favor of Jan-Pro, and sent the case back to the District Court for further proceedings. In its most recent order withdrawing its May 22, 2019 decision , the Ninth Circuit did not provide any reasons for doing so.

Impact of Withdrawal of Vasquez Decision

By vacating its decision regarding the retroactivity of Dynamex , the Ninth Circuit has provided businesses with a temporary victory. At this time, federal district courts are no longer bound by the holding in Vasquez and, the California Supreme Court has yet to decide the issue of retroactivity. While the California Supreme Court has discretion to grant or deny the Ninth Circuit's certification request, a denial is unlikely. However, when the California Supreme Court will take up the issue is undetermined and may not be any time soon.

We will continue to follow and report on any developments, including any legislative developments, regarding the retroactivity o f Dynamex . 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 .

Richard S. Rosenberg
Katherine A. Hren
David J. Fishman
Ballard Rosenberg Golper & Savitt, LLP