On January 14, 2021, the California Supreme Court decided, at the request of the Ninth Circuit, that its decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018) applies retroactively. Vazquez v. Jan-Pro Franchising International, Inc. (SC S258191 1/14/21). Dynamex adopted the “ABC test” for determining whether a worker is an employee or independent contractor for purposes of the obligations imposed by California’s wage orders. This holding makes it more difficult for a hiring entity to properly classify a worker as an independent contractor. The three-prong test requires the hiring entity to prove that the worker is: (A) free from the control and direction of the hiring entity; (B) performing work outside of the usual course of the hiring entity’s business; and (C) customarily engaged in an independently established trade of the same nature as the work performed.

In 2019, the Ninth Circuit held that the ABC test applied retroactively in the Vazquez case (please see our earlier blog post “Strict Independent Contractor Test Applies Retroactively”). The California high court followed this logic in 2021.

The California Supreme Court reasoned that because Dynamex did not change a settled rule, the ABC test applies retroactively with respect to obligations arising from California’s wage orders. Indeed, the Court relied on its prior opinions in which it noted “that the test for determining whether a worker should be classified as an employee or independent contractor in the wage order context remained an open question.” The Court was further motivated by policy concerns, including that the wage orders provide protection for workers, protect law-abiding businesses from unfair competition by businesses that do not comply, and benefit the public at large, which bears the burden of the ill effects of non-compliance with the wage orders’ minimum standards for working conditions.

In line with the Ninth Circuit decision in Vazquez, the California Supreme Court held that Dynamex applies retroactively to all non-final cases that predate the effective date of the April 30, 2018 Dynamex opinion. This could make businesses potentially liable for lawsuits filed before the rigid ABC test existed and may expand employers’ liability for practices that predate Dynamex. The retroactivity of Dynamex adds another temporal dimension to the existing dilemma created by fundamentally different standards for worker classification on the state and federal levels for businesses with independent contractors in California. A business that classifies its workers appropriately for federal purposes, and that historically classified its workers appropriately for purposes of California state law (as employers understood it prior to the Dynamex opinion), could nevertheless have exposure to liability in the wage and hour context in California.

Notably, however, Dynamex addressed only California’s wage orders, meaning that the holding in Dynamex does not apply to the much broader application of California’s worker classification law known as Assembly Bill 5 (“AB 5”), which did not go into effect until January 1, 2020 and applies only prospectively.