Court Says Dynamex “ABC” Test is Retroactive and Applies to PAGA Claims

by gspencermynko

Superior Court Judge rules “ABC” test can be applied retroactively!

In this two part article, I discuss two matters of major interest to all trucking companies in California. Specifically, the Retroactive application of the Dynamex “ABC” Test for Independent Contractorship and its application to PAGA Claims.

Dynamex Applied Retroactively To Dancers’ PAGA Suit.

While this is the first time I have discussed or mentioned “exotic dancers”  in a trucking law blog, this is definitely a matter trucking companies need to be concerned about, and the news is not good.  A California Superior Court judge ruled the California Supreme Court’s revolutionary Dynamex ruling that carved out a more rigid test for differentiating employees from independent contractors can apply retroactively to a Private Attorneys General Act (PAGA) suit brought by Imperial Showgirls dancers alleging labor code violations.
The IC world changed after the  Dynamex Operations West Inc. v. Superior Court of Los Angeles County decision, where California’s high court rejected a classification test used for almost three decades, and adopted a different standard known as the ABC test that presumes workers are employees instead of independent contractors for purposes of state wage orders – which govern items such as overtime and minimum wage – and places the burden on employers to prove workers aren’t employees.
The dancers alleged that since 2015 that Imperial Showgirls violated wage and hour provisions in the state labor code and asked Judge William D. Claster to clarify whether Dynamex would be applied in deciding their dispute, which involves the issue of whether the dancers are independent contractors. The judge held that Dynamex, which had been going on for 13 years by the time the Supreme Court issued its landmark decision, was intended to apply retroactively because “it did not state that its decision applied only prospectively.” “Given the age of the claims in the Dynamex case, and given the court’s longstanding acknowledgment of its authority to make such a statement … the lack of such a pronouncement suggests that the decision should apply retroactively,” Judge Claster wrote. The Judge went on to say: “Although not necessarily determinative, the court’s later decision to deny requests to modify its decision to state that Dynamex will only be applied prospectively supports this conclusion.”
The employer Imperial Showgirls argued that the Dynamex decision does not apply to PAGA claims since such claims are based on Labor Code violations, not violations of wage orders.
But Judge Claster ruled that the labor code “requires compliance with the wage orders.”

“The court’s holding that the ABC test should be applied to determine employee status under the wage orders can only mean that that test also had to be applied to labor code claims seeking to enforce the wage order requirements,” the judge said. “The court concludes that Dynamex’s ABC test should be utilized to determine the employee/independent contractor issues in this case. The fact that the case is brought under PAGA does not compel a different result.”

The judge went on to note that, for purposes of gratuities, the labor code’s definition of who qualifies as an employee is different, “arguably broader,” than the definition found in the wage orders. As a result, Judge Claster held that “there is no basis to apply the Dynamex analysis in determining issues relating to the gratuities issue in this case.”

In rejecting that argument, the Court concluded that although the PAGA claims in the dancers’ case were all based on alleged violations of the Labor Code (including failure to pay all wages owed, minimum wage violations; failure to provide meal breaks, rest breaks and accurate itemized wage statements; failure to reimburse all expenses; improper deductions from wages; and failure to permit the dancers to retain gratuities), an applicable wage order also covered each of the violations except for the gratuity claim. Because all of the claims except the gratuity claim were “rooted in the wage orders,” the Court ruled that the Dynamex ABC test applies.  The case is Oriana Johnson et al. v. VCG-IS LLC et al., case number 30-2015-00802813, in the Superior Court of the State of California, Orange County.
The ruling could have far-reaching effects in other cases, including a dispute before the Ninth Circuit between online meal delivery service Grubhub Inc. and a former driver. In June, both parties to that case filed dueling letters over whether a lower court’s finding that the driver was an independent contractor should be reconsidered in light of Dynamex. The appellate court said it would consider remanding the driver’s case if the district court indicates it would entertain similar arguments.

Shannon Liss-Riordan of Lichten & Liss-Riordan PC, who represents both the Imperial Showgirls dancers in Orange County and the driver in the Ninth Circuit case said that Judge Claster’s ruling is a good sign for clients like hers.

“The courts are not going to be receptive to these types of arguments, that Dynamex isn’t retroactive,” Liss-Riordan said. “I’m definitely bringing Judge Claster’s ruling to the attention of the Ninth Circuit and the district court in the Grubhub case.”

This is all bad news for trucking companies who have rightly relied on the “Common-Law” or “Borello” test for years, and I fear rulings like this one will only embolden plaintiff’s lawyers to bring misclassification lawsuits against trucking companies.

Why PAGA Claims can be so devastating.

The California labor Commissioner can institute investigations of trucking companies when the Labor and Workforce development agency refers a case following notification of a complaint filed through the Private Attorney Generals Act (PAGA). Investigators can audit a trucking company going back for approximately three years and look for wage, hour and labor law violations.
The labor Commissioner can issue huge citations for millions of dollars. The citations include minimum wage violations, liquidated damages violations, failure to pay overtime, failure to not provide final paychecks as required by law, not paying for rest breaks, not providing proper itemized wage statements, meal. break violations, not maintaining valid Worker’s Compensation insurance, not providing proper or accurate wage statements, and, of course, Misclassifying workers as independent contractors.

For example, A trucking company with 20 drivers could easily end up with a wage theft citation from the Labor Commissioners office for millions of dollars. I’ve seen a trucking company with a citation based on violations against one driver total over $100,000.00.

Enforcement investigations typically include a payroll audit of the previous three years to determine minimum wage, overtime and other labor law violations, and any payments owed and penalties due are calculated. Civil penalties collected are transferred to the State’s General Fund as required by law.

Here’s What The Labor Commissioner Says:

Worker misclassification is the practice of knowingly misclassifying an employee as an independent contractor. It deprives employees of minimum wage and overtime protections, as well as workers’ compensation coverage if injured on the job, and creates an unfair playing field for responsible employers who honor their lawful obligations to their employees. The Labor Commissioner’s Office enforces laws prohibiting the willful misclassification of workers.

When workers are paid less than minimum wage, they are entitled to liquidated damages that equal the amount of underpaid wages plus interest. If a worker quits, final wages are due within 72 hours of the notice. Waiting time penalties are imposed when the employer intentionally fails to pay all wages due to the employee at the time of separation. This penalty is calculated by taking the employee’s daily rate of pay and multiplying it by the number of days the employee was not paid, up to a maximum of 30 days.

The Division of Labor Standards Enforcement, or the Labor Commissioner’s Office, is the division within the Department of Industrial Relations (DIR) with wide-ranging enforcement responsibilities including adjudicating wage claims, inspecting workplaces for wage and hour violations, investigating retaliation complaints and educating the public on labor laws