Since April 2018, when the California Supreme Court issued its Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) decision, which radically changed the way in which courts differentiated between an independent contractor and employee in California, businesses have grappled with the ever-expanding grip of that decision. One of the key questions, unaddressed in the Dynamex decision, was whether it was intended to be applied retroactively. Litigants have been grappling with this question for almost two years. Yesterday the question was answered. More specifically, in Vasquez v. Jan-Pro Franchising, Inc., 2021 WL 127201 (Cal.),(Jan 14, 2021) the California Supreme answered the Ninth Circuit’s call to determine whether the Dynamex independent contractor test (commonly referred to as the A-B-C test) should be applied retroactively. The answer is yes.
In Dynamex, the Court threw out twenty years of precedent stemming from its 1989 decision in the S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), where the Court set forth the common law test to determine independent contractor status. In Dynamex, the Court articulated a new three-part test that required the worker to meet all of the following conditions to be considered an independent contractor: (A) be 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) perform work that is outside the usual course of the hiring entity’s business; and (C) customarily be engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. The Dynamex Court held that there is a presumption that workers are employees, and the burden falls on the hiring entity to meet each of the three prongs to show that a worker is an independent contractor.
Because Dynamex established such a stark change in the test for determining independent contractor status, employers, courts and attorneys have struggled to determine whether the California Supreme Court meant for the ABC test to be applied retroactively in cases where independent contractor status was at issue prior to April 2018.
Yesterday, in Vasquez, the California Supreme Court characterized the Dynamex decision as resolving/interpreting an open legal issue, whether the Wage Order’s “suffer or permit to work” definition should be used to determine whether a worker qualified as an employee or an independent contractor. By characterizing Dynamex as resolving an open issue, which did not overrule existing law, the Supreme Court justified its decision to follow the “well-established general principle affirming the retroactive application of judicial decisions interpreting legislative measures.” Id. * 4.
Many will disagree with Vasquez given the widespread understanding that the Borello common law test set the standard for determining independent contractor relationships for close to twenty years and was used uniformly by courts and administrative agencies right up to the date of the publication of Dynamex. Prior to April 2018, there was simply no way for employers and workers to know that the worker classification issue would be determined by a totally different test than the one articulated in Borello. However, those issues did not sway the Vasquez court, and the Dynamex A-B-C test is applicable, even when courts are reviewing the classification of workers during time periods prior to April 2018.
Vasquez is another difficult blow for employers, gig workers and small business owners who previously enjoyed greater flexibility to design the terms of their commercial relationship. This decision confirms that independent contracting relationship will continue to be met with a high level of scrutiny and suspicion in California courts. Moreover, the retroactive application of the Dynamex test may open the door for another surge of misclassification claims against hiring entities and an expansion of claims already filed into time periods prior to April 2018.