California Supreme Court Confirms Retroactivity of ABC Test

Nearly three years after issuing its decision in Dynamex Operations West, Inc. v. Superior Court, which adopted the “ABC Test” for determining whether a worker was an employee or independent contractor, the California Supreme Court has ruled in Vazquez v. Jan-Pro Franchising International, Inc. that Dynamex applies retroactively. 

Language in Dynamex presaged this result.  Vazquez is also consistent with the general rule that judicial decisions are given retroactive effect.  However, because the 2018 Dynamex opinion was silent on the issue of retroactivity, some employer litigants hoped that the Court could be persuaded to treat Dynamex as an exception to the general rule of retroactivity.  

What Does It Mean to Say That a Court Decision is Retroactive?

When a court’s decision is retroactive, it means that the rule announced in the Court’s opinion applies to any case or claim that is not yet subject to a final court judgment.  This is true even if the alleged acts giving rise to the claim occurred before the decision was announced.  A retroactive decision will not change the result in cases that are already concluded.

In California, the general rule is that judicial decisions are retroactive.  Sometimes courts will allow exceptions to the rule of retroactivity when compelling considerations of fairness or public policy are present.  Such compelling circumstances classically exist when courts announce a significant change to a settled area of law

Wasn’t Dynamex a Major Change in The Law?

Yes and No.  The three fixed prongs of the ABC Test incorporate the same factors that courts looked to under the previous independent contractor test (the Borello Test”).   The difference is that the Borello Test utilized a weighing approach under which no one factor was determinative.  One of the expressed concerns of Dynamex was that Borello’s multifactor approach was difficult for both courts and employers to apply.  The Court noted that this difficult application often lead to classification decisions by employers and judicial results that were inconsistent with the existing law and legislative intent to adopt the broadest standard for determining employment status.  

Vazquez also asserts that the use of the Borello Test was not a settled area of law, at least for determining applicability of California’s wage orders. Vazquez goes to pains to point out language in a prior case in which the Supreme Court stated it was declining to decide whether the Borello Test was the appropriate test for use in cases involving wage claims.  Nevertheless, it is true that had you consulted with a lawyer about independent contractor classifications prior to Dynamex, the lawyer would have probably advised you based on Borello because it was the framework in use by lower courts  

The final point made in Vazquez about the fairness of a prospective application is that the court must consider unfairness to a broader group than just putative employers involved in pending litigation.  The Court notes that employees involved in pending litigation have a right to the benefit of a test that is consistent with California’s broad definition of employment.  Further, a prospective-only application would create a competitive disadvantage for those employers who strictly complied with the law.  Finally, the Court notes that it has already given a retroactive application to its decision in the Dynamex case itself and that it would be unfair to hold the Dynamex defendant to the ABC Test, while exempting other employer defendants simply because Dynamex was decided first.

What about AB-5, AB-2257, and Proposition 22?

AB-5 was a legislative bill that codified the Dynamex decision into statutory law, while at the same time expanding the reach of the decision beyond wage order claims to areas like workers compensation.  It also enacted exceptions and exclusions from the ABC Test for certain occupations and industries. AB-5 went into effect on January 1, 2020.  AB-2257, effective September 4, 2020, expanded exemptions to additional occupations and made other refinements to the statutes enacted by AB-5.

Many of AB-5/AB-2257’s provisions are expressly retroactive, if they would relieve an employer from liability.  However, be aware that these exceptions do not give employers carte blanche to treat workers as independent contractors for several reasons.  First, the exceptions apply only in a very narrow sliver of occupations.  Second, in nearly all cases the exception provided is merely from application of the ABC Test (such that the Borello weighted factors test would apply).  Finally, many of the exceptions apply only if the hirer is able to satisfy requirements that are similar to some or all of the ABC Test’s prongs.    

Proposition 22 provides that App-Based Drivers are independent contractors if certain conditions are met.  It went into effect on December 16, 2020.  It does not contain a retroactivity provision.  (In contrast to judicial decisions, which are generally retroactive, statutory law is usually prospectively applied, unless the statute states otherwise, as in the case of AB-2257.) Dynamex and the ABC Test therefore continue to apply to classification determinations for App-Based Drivers employed prior to December 16, 2020.

The statutes enacted by AB-5, AB-2257, and Proposition 22 are complex.  Employers who believe one of these statutes may apply are strongly advised to consult with legal counsel.  Attorneys in Donahue Fitzgerald’s Employment Group are familiar with the issues presented by these statutes and ready to help guide you through an evaluation.