In 2018, the California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court fundamentally changed the manner by which workers are classified as employees or independent contractors. The court found under the “suffer or permit to work” employee definition in all California wage orders, any worker who performs work for a business is presumed to be an employee and to be deemed an independent contractor an employer must prove (1) that the worker is free from the control and direction of the hirer; (2) the worker performs work that is outside the usual course of the hiring company’s business; and (3) the worker is customarily engaged in an independently-established trade or business.
In response to a question posed by the Ninth Circuit in the matter of Vazquez v. Jan-Pro Franchising International, Inc., the California Supreme Court held that the Dynamex ABC test applies retroactively – that is to all cases not yet final as of the date the Dynamex decision became final.
As a general rule, judicial decisions are given retroactive effect. An exception to the general rule arises when a judicial decision changes a settled rule on which the parties relied. However, the exception does not arise when a decision clarifies a law or corrects a previously misconstrued law. The employer Jan-Pro contended that businesses could not have reasonably anticipated that the ABC test would govern at the time they classified workers as independent contractors and reasonably believed that classification would be determined by application of the standard set forth and applied in the California Supreme Court’s decision in S.G. Borello & Sons v. Dept. of Industrial Relations.
Chief Justice Tani G. Cantil-Sakauye wrote “Dynamex addressed an issue of first impression. It did not change a settled rule on which the parties below had relied. No decision of this court prior to Dynamex had determined how the ‘suffer or permit to work’ definition in California’s wage orders should be applied in distinguishing employees from independent contractors.” The decision further stated “public policy and fairness concerns, such as protecting workers and benefitting businesses that comply with the wage order obligations, favor retroactive application of Dynamex.”
Application of the Dynamex ABC test in determining independent contractor status has been an evolving issue since its adoption in 2018. The ABC test was codified into law by A.B. 5 and expanded to other employment laws. It was then excluded from ride-hailing and delivery services by the voters in Proposition 22 and additional occupations when Governor Newsom signed AB 2257. However, it is now clear that if the ABC test applies to an employer’s workers, it applies retroactively and not just from 2018.
For those workers that fall into a category excluded from the ABC test, their employment status will continue to be determined by the multiple factors set out in the Borello case.
As always, if you have any questions about determining employment status of your workers, RPNA can help. Please contact Nicholas Roxborough at (818) 992-9999, ext. 222, Drew Pomerance at ext. 212, Michael Adreani at ext. 234, Marina Vitek at ext. 236, or Trevor Witt at ext. 224.