Business groups are urging the California Supreme Court to limit the scope of a recent decision that redefined the standard for whether a worker is a contractor or employee and opened a door to substantial penalties for companies.

The delivery company Dynamex Operations West Inc. and two business advocates have asked the court to not retroactively apply the decision, which set a more rigid worker classification standard that makes it harder for gig-economy companies and others to call their workers independent contractors.

The consequences of the April 30 ruling could be wide for gig-economy companies that rely on contractors, who unlike many employees are not entitled to benefits such as minimum wage, health care or collective bargaining rights. Management-side lawyers predicted a flood of litigation in the aftermath of the decision.

“Retroactive application could void existing contractual relationships statewide,” Dynamex's lawyers at Littler Mendelson and McDermott Will & Emery wrote in a petition filed this week at the California Supreme Court. “It could require relitigation of independent contractor/employee issues in administrative agencies and courts. None of this would be consistent with orderly administration of justice.”

Lawyers for Dynamex called the California Supreme Court decision “a fundamental change to substantive law.”

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The Employers Group, represented by Jones Day's George Howard Jr., told the court in a brief that “many California employers have relied in good faith for years if not decades” to meet the classification standards set by a 1989 case. Howard said the California Supreme Court's ruling “establishes a test for independent contractor status materially different from prior law and one which was not reasonably foreseeable.”

The California Employment Law Council, represented as an amicus by Orrick, Herrington & Sutcliffe, also asked the court for clarification.

Paul Hastings partner Paul Grossman, general counsel to the employment council, told the court in a letter that applying the ruling retroactively would “not only be unfair to law-abiding employers who based classification decisions” on the previous test, but also “to the extent that it imposed liability on such law-abiding employers.” Grossman wrote: “These law-abiding employers should not now face mammoth retroactive liability.”

Meanwhile, the on-demand food delivery company Grubhub Inc., represented by Gibson, Dunn & Crutcher, took a similar stance in resisting the push by a former worker to quickly apply the decision to a pending worker classification dispute in the U.S. Court of Appeals for the Ninth Circuit.

The worker is fighting in the appeals court to overturn a judge whose ruling in February supported Grubhub's classification of its workers as contractors, not employees.

Shannon Liss-Riordan, the Boston-based lawyer who represents the Grubhub worker, has urged the Ninth Circuit to return the case to the trial court for further review in the wake of the ruling.

“Notably, the Dynamex decision makes clear that California's adoption of the ABC test is a reinterpretation of existing law, and thus the decision will apply retroactively, including to plaintiff in this case,” Liss-Riordan wrote in a court filing on May 4.

Two new worker classification lawsuits Liss-Riordan filed against Postmates Inc. and Lyft Inc. embraced the California Supreme Court ruling.

 

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