From JDSupra, James Carter and Kelli Winkle discuss the California Supreme Court’s decision to apply retroactively the Dynamex decision and the ABC test for determining if individuals are employees or independent contractors. James and Kelli write:
In Vazquez v. Jan-Pro Franchising International (Vazquez), the California Supreme Court answered “Yes” to the Ninth Circuit’s question, “Does your independent contractor ABC test in Dynamex Operations West, Inc. v. Superior Court (Dynamex) apply retroactively?”
In 2018, the Dynamex Court concluded that under California wage orders, anyone who performs work for a business is presumed to be an employee entitled to the protections afforded by the wage orders.
The Dynamex Court also held that a hiring entity can avoid that presumption of employment and wage order application when it comes to independent contractors, but 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.
This infamous “ABC Test” was codified into California statutory law by Assembly Bill 5 (AB 5).
Before the ABC Test, California courts and California hiring entities used a multifactor test outlined in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, commonly known as the “Borello Test.” The Borello Test focused on the amount of control a business exercised over a worker by looking at numerous factors. The more control a business exercised over a worker (e.g. set hours, location of where work was to be performed), the less likely that the worker could be properly classified as an independent contractor.
Since the ABC Test is more stringent than the Borello Test, employers and industry groups argued they should not be held accountable under the ABC Test in misclassification lawsuits that predated the Dynamex opinion.
The Vazquez Court disagreed, holding that it “did not change a settled rule on which the parties below had relied” and that Dynamex addressed an issue of first impression. The Vazquez Court simply concluded that there was no reason to depart from the general rule that judicial decisions are given retroactive effect.
What does this mean for California employers? Any employers defending against independent contractor misclassification cases that predate the 2018 Dynamex decision should reevaluate those issues under the more demanding ABC Test rather than rely on the more favorable, but outdated Borello Test. And for those lucky employers not facing misclassification litigation at the moment, the Vazquez decision justifies company worker classification audits looking back beyond 2018.