The California Supreme Court recently released its opinion on the retroactivity of the historic Dynamex ruling. The Court ruled in Vasquez v. Jan-Pro Franchising International, Inc. that the “ABC” Test from Dynamex will be applied retroactively, meaning California employers may be subjected to still further litigation from former workers claiming to have been misclassified as independent contractors.

Borello Test and the “ABC” Test

Dynamex was the momentous 2018 California Supreme Court case in which California officially adopted the “ABC” Test for independent contractor classification. Under this test, for purposes of claims under any California Wage Order, an employer must show all of the following to classify a worker as an independent contractor: (A) 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 and in fact; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Before Dynamex, the California Division of Labor Standards Enforcement, Courts of Appeal, and most employers relied upon the Borello Test, which arose from the 1989 case S.G. Borello & Sons v. Dept. of Industrial Relations. The Borello Test utilized at least nine independent factors for determining independent contractor classification. The Dynamex opinion officially rejected Borello as the applicable test for California wage disputes. The parties in Dynamex wanted to know: was the Supreme Court’s ruling a change in the law or just a restatement of existing law? The Supreme Court declined to answer that question.

Dynamex is Retroactive

The Supreme Court finally answered that question on January 14, 2021. Jan-Pro is a federal court case in which the federal justices paused their deliberations to ask California’s highest court finally to resolve the retroactivity question. The Supreme Court ruled that the ABC Test from Dynamex was not a change in the law and thus should be applied retroactively as if it had always been the law in California.

The Supreme Court began with the well-accepted rule of jurisprudence that a court’s opinion is usually given retroactive effect because courts are generally supposed to interpret the law and not make new law. Significantly, the Court rejected the argument that an exception to retroactively should be applied based on “fairness and public policy.” The Supreme Court found there was no unfair result even if the public assumed for the past 32 years that Borello was the general independent contractor test. The Court opined that it repeatedly warned the public for decades that the law for independent contractors was an “open question” in an “unsettled area.” Although the Court had many opportunities to clarify the issue, it had never “issued a definitive decision.” In 2010 and 2014, the Supreme Court issued two rulings in which it stated in passing that it was still not deciding whether or not Borello represented the law on California independent contractors for purposes of wage disputes (because Borello was a Worker’s Compensation case). Because “no prior case” from the Supreme Court “had directly addressed” the issue, employers acted at their peril in assuming that Borello was the correct view of the law. The Court expressly reproved: “employers were clearly on notice well before the Dynamex decision that…a worker’s status as an employee of independent contractor might well depend” on how the Supreme Court ruled someday in the future. In short, the Supreme Court ruled that there could be no change in the law because it had never previously said what the law was.

As to “public policy,” the Supreme Court noted that the general purpose of wage laws is to provide for worker families and grant workers “a modicum of dignity and self-respect.” As such, public policy interests weighed more heavily in favor of employees than industries.

What Jan-Pro Means for California Employers

The retroactivity ruling may breathe new life into stale employment claims for services performed back in 2017 to 2018. The Jan-Pro retroactivity ruling does nothing to change the 2020 California statute (aka AB 5) adopting the ABC Test and its various exceptions for various occupations.