The California Supreme Court has concluded that the ABC Test it developed for determining whether a worker is an independent contractor or employee applies retroactively. Therefore, the ABC Test, first developed in the Court’s Dynamex decision, applies to California wage and hour claims implicating a time period prior to issuance of the Dynamex decision on April 30, 2018.

The Court reasoned that retroactive application was appropriate because California generally applies judicial decisions retroactively and no exception was warranted here. California recognizes an exception to the general rule of retroactivity when considerations of fairness and public policy justify an exception.

The primary argument raised for invoking this exception was that employers had been relying on the Court’s Borello decision, issued in 1989, for determining whether a worker was an employee or independent contractor. Borello established a multi-factor test for determining whether a worker was an employee or an independent contractor for purposes of determining workers’ compensation coverage, focusing on the entity’s control over the worker. The Dynamex decision rejected application of this test in wage and hour cases in favor of a new ABC Test: (A) does the hiring entity exercise control over the employee’s work; (B) does the worker perform work that is outside the usual course of the hiring entity’s business; and (C) is the worker customarily engaged in an independently established trade, occupation, or business of the same nature of the work performed for the hiring entity. The Borello test consisted of several factors that were weighed; but under the ABC Test, if the hiring entity does not establish all three parts of the test in its favor, then the worker is an employee rather than an independent contractor.

The Court rejected reliance on the Borello test to justify an exception to the general rule of retroactivity. The Court explained that Borello related to workers’ compensation rather than the interpretation of wage orders, which is what the ABC Test applies to. And as there had been no prior decision setting a test for determining the nature of a worker’s classification under California’s wage orders prior to Dynamex, it was unreasonable for employers to think the Borello test would govern.

The Court not only concluded it was unreasonable for employers to rely on the Borello decision, but also opined that employers should have reasonably anticipated the Dynamex decision because “the three elements of the ABC test are prominent factors already listed in Borello.” The Court does not explain its seemingly contradictory reasoning that it was unreasonable for employers to rely on Borello but also that employers should have anticipated the Dynamex decision because of Borello.

The Court concluded by noting that the impact of its ruling is limited in light of the applicable statutes of limitations because the Dynamex decision is nearly three years old. The Court’s decision from Vazquez v. Jan-Pro Franchising International, Inc. can be accessed here.

Bottom Line: California’s ABC Test for determining whether a worker is an employee or an independent contractor applies to claims implicating a time period prior to issuance of the Dynamex decision on April 30, 2018.