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Independent Contractor "ABC Test" Applies Retroactively

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In April 2018, the California Supreme Court decided Dynamex Operations West Inc v. Superior Court (“Dynamex”), which drastically changed the standard for determining whether California workers should be classified as independent contractors or employees. In Dynamex, the court held that there is a presumption that workers are employees, and that a company classifying an individual as an independent contractor bears the burden of establishing that such a classification is proper under a new legal standard, referred to as the ABC Test.”  

Yes, It’s Retroactive!

Since the Dynamex decision, employers and legal experts have speculated whether the ABC Test applies retroactively to employers. 

On May 2, 2019, the Ninth Circuit issued a stunning decision in Vasquez v. Jan-Pro Franchising International, Inc. (“Vasquez”) that California law requires the ABC Test to apply retroactively when analyzing worker classification.

In Vasquez, the plaintiffs alleged the janitorial services company misclassified its franchisees as independent contractors. The plaintiffs appealed the dismissal of their claim after the Dynamex ruling. The Ninth Circuit vacated the dismissal and remanded the case to the district court to consider the merits in light of the retroactive application of Dynamex.

In reaching its decision, the Ninth Circuit rejected the defendant’s argument that applying the ABC Test retroactively would be unfair because it exposed the defendant to liability under a new and different test when the defendant had operated legally under the then-existing test. In rejecting that contention, the court reasoned that “[g]iven the strong presumption of retroactivity, the emphasis in Dynamex on its holding as a clarification rather than as a departure from established law, and the lack of any indication that California courts are likely to hold that Dynamex applies only prospectively, we see no basis to do so either.” The Vasquez court noted that retroactivity ensures plaintiffs can financially provide for themselves and furthers California’s wage and hour laws, which are construed in favor of workers to ensure they do not earn substandard wages.

Potential Liability to Employers

California companies may now face liability for unpaid wages as a result of misclassification for up to four years prior to the filing of any lawsuit—even if the workers were properly classified as independent contractors prior to Dynamex. California companies should be aware that there may be an increase in wage-and-hour lawsuits as a result of the retroactive application of Dynamex.

MLG encourages companies utilizing independent contractors to seek counsel regarding whether their workers are properly classified under the ABC Test, and how they may potentially limit their liability in light of the retroactive reach of Dynamex.

 

Author: Caitie Emmett, Associate.

The Maier Law Group helps companies ensure that their policies and practices comply with the relevant workplace regulations.  Please contact us at info@maierlawgroup.com for more information.

This article has been prepared for general informational purposes only and does not constitute advertising, solicitation, or legal advice. If you have questions about a particular matter, please contact the Maier Law Group directly.