On 14 January 2021, the California Supreme Court held in Gerardo 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 if all three of 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 to Dynamex, this question would be determined by the court’s less stringent 1989 Borello test, 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 (discussed here ) and Proposition 22 (discussed here), 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 the Dynamex decision was first issued. 

Significantly, the court specifically rejected the argument that employers had relied on the court’s 1989 Borello decision before the Dynamex decision 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 the Dynamex 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 liability or 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.