Vazquez v. Jan-Pro Franchising Int'l, Inc.

• Decision Date: 14 January 2021
• Docket Number: S258191
• Citation: Vazquez v. Jan-Pro Franchising Int'l, Inc., 10 Cal.5th 944, 273 Cal.Rptr.3d 741, 478 P.3d 1207 (Cal. 2021)
• Court: California Supreme Court
• Parties: Gerardo VAZQUEZ et al., Plaintiffs and Appellants, v. JAN-PRO FRANCHISING INTERNATIONAL, INC., Defendant and Respondent.

10 Cal.5th 944

478 P.3d 1207

273 Cal.Rptr.3d 741

Gerardo VAZQUEZ et al., Plaintiffs and Appellants, v. JAN-PRO FRANCHISING INTERNATIONAL, INC., Defendant and Respondent.

S258191

Supreme Court of California.

January 14, 2021

Lichten & Liss-Riordan and Shannon Liss-Riordan for Plaintiffs and Appellants.

Nayantara Mehta; Cynthia L. Rice, Oakland, Verónica Meléndez; Jennifer Reisch ; Carol Vigne ; Ellyn Moscowitz, Oakland; Rocio Alejandra Avila ; and Jora Trang, San Francisco, for National Employment Law Project, California Rural Legal Assistance Foundation, Equal Rights Advocates, Legal Aid at Work, Legal Aid of Marin, National Domestic Workers Alliance and Worksafe, Inc., as Amici Curiae on behalf of Plaintiffs and Appellants.

Olivier Schreiber & Chao, Monique Olivier, San Francisco; and Reynaldo Fuentes for California Employment Lawyers Association and Partnership for Working Families as Amici Curiae on behalf of Plaintiffs and Appellants.

O'Hagan Meyer, Jeffrey M. Rosin ; Willenken, Jason H. Wilson, Eileen M. Ahern and Amelia L.B. Sargent, Los Angeles, for Defendant and Respondent.

Marron Lawyers, Paul Marron, Steven C. Rice and Paul B. Arenas, Long Beach, for Taxicab Paratransit Association of California as Amicus Curiae on behalf of Defendant and Respondent.

Arnold & Porter Kaye Scholer, James F. Speyer and Vanessa C. Adriance, Los Angeles, for California Chamber of Commerce and the International Franchise Association as Amici Curiae on behalf of Defendant and Respondent.

Horvitz & Levy, Jeremy B. Rosen, Peder K. Batalden and Felix Shafir, Burbank, for Chamber of Commerce of the United States of America as Amicus Curiae on behalf of Defendant and Respondent.

Paul Hastings, Paul Grossman and Paul W. Cane, Jr., San Francisco, for California Employment Law Council and Employers Group as Amici Curiae on behalf of Defendant and Respondent.

Opinion of the Court by Cantil-Sakauye, C. J.

At the request of the United States Court of Appeals for the Ninth Circuit, we agreed to decide the following question of California law (see Cal. Rules of Court, rule 8.548 ): Does this court's decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1 ( Dynamex ) apply retroactively?

For the reasons set forth below, we conclude that Dynamex does apply retroactively. In Dynamex , this court was faced with a question of first impression: What standard applies under California law in determining whether workers should be classified as employees or independent contractors for purposes of the obligations imposed by California's wage orders? In addressing that question, we concluded that under one of the definitions of "employ" set forth in all California wage orders — namely, to "suffer or permit to work" — any worker who performs work for a business is presumed to be an employee who falls within the protections afforded by a wage order. ( Dynamex , supra , 4 Cal.5th at p. 916, 232 Cal.Rptr.3d 1, 416 P.3d 1.) We further held that such a worker can properly be found to be "an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity's business; and (C) that 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." ( Id. at pp. 916–917, 232 Cal.Rptr.3d 1, 416 P.3d 1.) This standard, also used in other jurisdictions to distinguish employees from independent contractors, is commonly referred to as the "ABC test." ( Id. at p. 916, 232 Cal.Rptr.3d 1, 416 P.3d 1.)

In concluding that the standard set forth in Dynamex applies retroactively — that is, to all cases not yet final as of the date our decision in Dynamex became final — we rely primarily on the fact that Dynamex addressed an issue of first impression. It did not change a settled rule on which the parties below had relied. No decision of this court prior to Dynamex had determined how the "suffer or permit to work" definition in California's wage orders should be applied in distinguishing employees from independent contractors. Particularly because we had not previously issued a definitive ruling on the issue addressed in Dynamex , we see no reason to depart from the general rule that judicial decisions are given retroactive effect.

Defendant Jan-Pro Franchising International, Inc. asserts that an exception to the general rule of retroactivity should be recognized here. Defendant maintains that, prior to the issuance of our decision in Dynamex , it reasonably believed that the question of whether a worker should be classified as an employee or independent contractor would be resolved under the standard set forth in this court's decision in S.G. Borello & Sons v. Department of Industrial Relations (1989) 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d 399 ( Borello ). Borello addressed whether farmworkers hired by a grower under a written "sharefarmer agreement" were independent contractors or employees for purposes of the workers' compensation statutes. ( Id. at p. 345, 256 Cal.Rptr. 543, 769 P.2d 399.) The Borello decision, however, did not address whether a worker should be considered an employee or an independent contractor for purposes of the obligations imposed by a wage order. Indeed, twice in the last decade, we signaled that the test for determining whether a worker should be classified as an employee or independent contractor in the wage order context remained an open question. ( Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, 173 Cal.Rptr.3d 332, 327 P.3d 165 ( Ayala ); Martinez v. Combs (2010) 49 Cal.4th 35, 57–58, 109 Cal.Rptr.3d 514, 231 P.3d 259 ( Martinez ).)

Defendant additionally contends that it could not have anticipated that the distinction between employees and independent contractors for purposes of the obligations imposed by a wage order would be governed by the ABC test that we adopted in Dynamex . But defendant's argument carries little weight when, as here, the underlying decision changes no settled rule. Moreover, public policy and fairness concerns, such as protecting workers and benefitting businesses that comply with the wage order obligations, favor retroactive application of Dynamex . Thus, we do not view the retroactive application of the ABC test to cases pending at the time Dynamex became final as improper or unfair.

Accordingly, in response to the question posed by the Ninth Circuit, we answer that this court's decision in Dynamex applies retroactively.

I. DYNAMEX 'S INTERPRETATION OF THE SUFFER OR PERMIT TO WORK DEFINITION IN WAGE ORDERS APPLIES RETROACTIVELY TO ALL NONFINAL CASES GOVERNED BY SIMILARLY WORDED WAGE ORDERS

As noted, the sole issue before this court is whether our decision in Dynamex , supra , 4 Cal.5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1, applies retroactively. ¹

We begin with a brief summary of the Dynamex decision. In Dynamex , we faced the question regarding what standard applies in determining whether, for purposes of the obligations imposed by California's wage orders, a worker should be considered an employee who is covered and protected by the applicable wage order or, instead, an independent contractor to whom the wage order's obligations and protections do not apply. ² As we explained in Dynamex , all currently applicable California wage orders, in defining the terms as used in the wage orders, define the term " ‘employ’ " in part to mean " ‘suffer or permit to work’ " and define the term " ‘ "employee" ’ " to mean " ‘any person employed by an employer.’ " ( Dynamex , supra , 4 Cal.5th at p. 926, 232 Cal.Rptr.3d 1, 416 P.3d 1 ; see id. at p. 926 fn. 9, 232 Cal.Rptr.3d 1, 416 P.3d 1.) At the same time, we noted that the wage orders do not contain a definition of the term " ‘independent contractor’ " nor any "other provision that otherwise specifically addresses the potential distinction between workers who are employees covered by the terms of the wage order and workers who are independent contractors who are not entitled to the protections afforded by the wage order." ( Id. at p. 926, 232 Cal.Rptr.3d 1, 416 P.3d 1.)

After a lengthy review of prior relevant California decisions ( Dynamex , supra , 4 Cal.5th at pp. 927–942, 232 Cal.Rptr.3d 1, 416 P.3d 1 ), we described the variety of standards that "have been adopted in legislative enactments, administrative regulations, and court decisions as the means for distinguishing between those workers who should be considered employees and those who should be considered independent contractors." ( Id. at p. 950 & fn. 20, 232 Cal.Rptr.3d 1, 416 P.3d 1.) We explained that as early as 1937, the suffer or permit to work standard embodied in California's wage orders had been described "as ‘the broadest definition’ that has been devised for extending the coverage of a statute or regulation to the widest class of workers that reasonably fall within the reach of a social welfare statute." ( Id. at p. 951, 232 Cal.Rptr.3d 1, 416 P.3d 1.) We took note of a number of criticisms that had been advanced regarding several tests that rely upon a "multifactor, ‘all the circumstances’ standard" for distinguishing between employees and independent contractors. ( Id. at p. 954, 232 Cal.Rptr.3d 1, 416 P.3d 1 ; see id. at pp. 954–956, 232 Cal.Rptr.3d 1, 416 P.3d 1.) Thus, in part to avoid these criticisms, we concluded in Dynamex that it is "most consistent with the history and purpose of the suffer or permit to work standard in California's wage orders ... to interpret that standard as: (1) placing the burden on the hiring entity to establish that the worker is an independent contractor who was not...