On January 14, 2021, the California Supreme Court in Vasquez v. Jan-Pro Franchising, Inc., 2021 WL 127201 (Cal. Jan 14, 2021) held that its landmark April 2018 Dynamex decision for determining independent contractor status applies retroactively. This question was posed to the California Supreme Court by the Ninth Circuit after it withdrew its May 2019 holding that the Dynamex test applied retroactively.
In Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal. 5th 903, the California Supreme Court adopted the “ABC test” of which a company must satisfy all three parts to classify workers as independent contractors under California’s wage orders. Under the three-part test, a worker is generally considered an employee under the putative employer can establish: (a) the worker was not under its direction and control in performance of the work in question; (b) the worker’s business was not in the hiring company’s usual course of business; and (c) the worker was customarily engaged in an independent trade or business.
In holding the Dynamex test applied retroactively, the California Supreme Court reasoned that the misclassification test applicable to the Wage Orders addressed an issue of first impression rather than changing a settled rule. Prior to Dynamex, the California Supreme Court had not explicitly ruled on the meaning of the “suffer or permit to work” language in the Wage Orders in the context of independent contractors. The Court also found that the ABC test “was within the scope of what employers reasonably could have foreseen” as the Court’s prior decisions “provided putative employers notice concerning the potential breadth of the suffer or permit to work language.”
The ABC test will now be applied to any pending cases covering a time period prior to April 30, 2018. The Court attempted to soften the severity of its decision by stating that since Dynamex is nearly three years old, “the retroactive application of Dynamex will in practice affect a limited number of cases.”
Notably, Dynamex only applies to independent contractor misclassification-related claims arising from the Wage Orders prior to 2020. As of January 1, 2020, Assembly Bill 5 (“AB5”) became effective and applies the ABC test prospectively to all independent contractor misclassification-related claims arising from the Wage Orders and the California Labor Code.