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California Supreme Court says 2018 ‘ABC Test’ for worker classification applies retroactively

Written by
FordHarrison LLP, nationwide U.S. law firm with a singular focus on HR law.
Authors
JACK
Jack Schaedel
FordHarrison LLP
XU
Jamin Xu
FordHarrison LLP
United States
11.02.21
2
The California Supreme Court has ruled that the ‘ABC Test’ for determining whether a worker is an employee or independent contractor applies retroactively. This article explains the possible consequences for employers.

On 14 January 2021, the California Supreme Court held inGerardo Vazquez v. Jan-Pro Franchising International, Inc.that the stringent ABC test for determining whether a worker is an independent contractor or employee applies retroactively to the time period before the court adopted the ABC test in its 2018 Dynamex decision. The ABC test, which was also codified by the legislature as Assembly Bill (AB) 5, determines that a worker can only be classified as an independent contractor ifall threeof the following requirements are met:

  • the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;and
  • the worker performs work that is outside the usual course of the hiring entity’s business;and
  • the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

 

Prior toDynamex, this question would be determined by the court’s less stringent 1989Borellotest, which looked to multiple factors to answer a principal question of whether the person receiving a service has the right to control the manner and means of completing that service. 

Although 2020 saw a series of changes to the law in California by providing numerous exceptions to the ABC test for various categories of workers in the form of AB 2257 (discussedhere ) and Proposition 22 (discussedhere), this new decision highlights that regardless of subsequent changes to the law, employers may nonetheless be held liable for violations of the ABC test prior to those changes, and even prior to April 30, 2018, when theDynamexdecision was first issued. 

Significantly, the court specifically rejected the argument that employers had relied on the court’s 1989Borellodecision before theDynamexdecision first discussed the ABC test in 2018; the court found no reason to depart from the general rule that California courts apply decisions retroactively. While theDynamex decision is now almost three years old, with a quickly expiring statute of limitations period, challenges to the recently passed Proposition 22 are already underway before the California Supreme Court, as discussed here and the implications of this and other decisions being retroactive may result in significant liability for employers who, understandably, do not know which form of the law to apply. 

Therefore, employers should beware that any relief based on changes in the law may not necessarily absolve them of prior liabilityor liability that they could be exposed to resulting from a change in the law due to a future court decision. Companies who engage independent contractors should continue to evaluate the viability of that classification under the ABC test, particularly because any changes to the law may or may not be retroactive, and may or not may not apply outside of the particular company or the gig economy. Therefore, liability could result from government enforcement and actions (including class actions) filed by purported employees.