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May 2019

Ninth Circuit Expands “Independent Contractor” Ruling to Franchisees

The Ninth Circuit today expanded the reach of California’s Dynamex decision on the independent contractor / employee distinction, ruling that Dynamex applies (1) retroactively, to cases brought before the decision was issued, and (2) to the claims of franchisees in a “three-tier” franchise operation.

Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 adopted the so-called ABC test, under which a worker is considered an employee not an independent contractor unless all three of the elements are satisfied:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the 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.

The latter two requirements are particularly troublesome for many businesses.

The Ninth Circuit first determined that Dynamex applied retroactively, and thus applied to this long-simmering class action. “Dynamex did not fabricate the ABC test anew, but instead carefully explained how the test remains ‘faithful . . . to the fundamental purpose of [California’s] wage orders.’ . . . Given the strong presumption of retroactivity, the emphasis in Dynamex on its holding as a clarification rather than as a departure from established law, and the lack of any indication that California courts are likely to hold that Dynamex applies only prospectively, we see no basis to do so either.”

The Ninth Circuit also rejected the franchisor’s arguments that Dynamex did not apply in franchise situations. The franchisor cited Patterson v. Domino’s Pizza, LLC (2014) 60 Cal.4th 474, which found a franchisor not liable for harassment of a franchisee’s employee by her supervisor. The Ninth Circuit found the case distinguishable, nearly irrelevant. “Patterson focused on the liability of a franchisor for a sexual assault against an employee of the franchisee. In other words, it was a case about vicarious liability in the tort context. Dynamex, which did not mention Patterson, is about wage orders. There is no reason that the tests for employee status must necessarily be the same in wage order cases as in vicarious liability tort cases.” The Ninth Circuit further observed that “[t]he classic justifications for imposing (or withholding) vicarious liability based on control (or lack thereof) have little to do with the rationale for wage orders.”

The decision is Vazquez v. Jan-Pro Franchising Int’l .


Don Willenburg

Employment Law