August 21, 2019

Key California Employment Law Cases: May 2019

This month’s key California employment law cases involve the Dynamex case and the effect of prior administrative hearing on a civil lawsuit.

Vazquez v. Jan-Pro Franchising Int’l, Inc., 923 F.3d 575 (2019), reh’g granted & opinion withdrawn, 2019 WL 3271969 (9th Cir. July 22, 2019)

Summary:  California Supreme Court’s decision in Dynamex Operations West Inc. v. Superior Court, regarding classification of employees and independent contractors, applies retroactively.

Facts:  Plaintiffs, janitors who purchased unit franchises from defendant Jan-Pro Franchising International, filed a class action lawsuit alleging that Jan-Pro had developed a sophisticated franchising model to avoid paying plaintiffs minimum wages and overtime compensation by misclassifying them as independent contractors.  The federal district court granted summary judgment in favor of Jan-Pro because plaintiffs failed to raise a genuine dispute of fact about whether it exercised control over plaintiffs, suffered or permitted plaintiffs to work, or created a common law employment relationship.  

Court’s Decision:  The Court of Appeals for the Ninth Circuit reversed, vacating the decision and remanding for a new trial because the district court applied the wrong test.  The Ninth Circuit directed the district court to apply, retroactively, the ABC test set forth in Dynamex Operations West Inc. v. Superior Court, 4 Cal. 5th 903, 232 Cal. Rptr. 1 (2018), to the decades-old dispute.  The Ninth Circuit reasoned that California law demands retroactive application, noting that statutes operate only prospectively, while judicial decisions operate retrospectively.  Further, a judicial decision retroactively changing liability is constitutionally problematic only if the new rule is arbitrary or irrational, and, according to the Ninth Circuit, applying Dynamex retroactively is neither arbitrary nor irrational.

The Ninth Circuit subsequently withdrew this opinion and stated that it will be certifying the question of whether Dynamex applies retroactively to the California Supreme Court.

Practical Implications:  While it may be short-lived, this decision is a positive development for employers that were concerned about the retroactive application of Dynamex.


Bennett v. Rancho Cal. Water Dist., 35 Cal. App. 5th 908, 248 Cal. Rptr. 3d 21 (2019)

Summary:  Collateral estoppel did not help plaintiff who obtained favorable finding based on lesser burden of proof in prior administrative proceeding than he would bear in subsequent court proceeding.

Facts:  Plaintiff Shawn Bennett sued defendant Rancho California Water District for whistleblower retaliation in violation of California Labor Code section 1102.5(b).  In a proceeding before the California Public Employee’s Retirement System (“CalPERS”), CalPERS determined that plaintiff was the district’s employee and entitled to retirement benefits.  The district appealed.  An administrative law judge denied the district’s appeal because it did not satisfy its burden of proving by a preponderance of the evidence that plaintiff was an independent contractor.  At the jury trial on plaintiff’s whistleblower claim, the trial court excluded evidence showing plaintiff’s relationship with the district was anything other than an employment relationship.  Citing the prior administrative finding that plaintiff had been the district’s employee for purposes of retirement benefits eligibility through CalPERS, the trial court concluded that the doctrine of collateral estoppel applied and established that plaintiff had been the district’s employee.

Court’s Decision:  The California Court of Appeal reversed, holding that a party is not collaterally estopped from litigating an issue when, in a prior proceeding, a dispositive finding had been made, but only by imposing a lesser burden of proof on the party invoking collateral estoppel than what would have been applied in the subsequent proceeding.  In the prior CalPERS proceeding, the judge expressly assigned the district the burden of proving plaintiff had been its independent contractor and thereby entirely relieved plaintiff of any burden of proof on that issue.  Here, however, plaintiff had to prove employment status to prevail on a section 1102.5(b) claim.  Accordingly, the trial court erred by invoking the doctrine of collateral estoppel and precluding litigation of plaintiff’s employment status.

Practical Implications:  While the administrative proceeding in this case centered on retirement benefits, employers are often confronted with a civil lawsuit after a prior administrative proceeding involving unemployment insurance or other issue.  In defending the lawsuit, employers should carefully consider whether they can preclude claims based on prior determinations in their favor.