On November 20, 2019, the Supreme Court of California announced it would review and decide whether its 2018 Dynamex decision has retroactive effect. The answer to this question could have a profound impact on any company using independent contractors in the Golden State.
In Dynamex, the California Supreme Court adopted the so-called “ABC test” for determining whether a given worker is properly classified as an independent contractor or an employee under the state’s wage orders. Under the ABC test, a worker is presumed to be an employee unless the hiring entity can prove: (a) the worker is not under its direction or control in the performance of the subject work; (b) the worker is not doing business in the hiring company’s “normal course of business;” and (c) the worker is customarily engaged in an independent business. The burden of proof is on the hiring company, and as a practical matter, the ABC test typically results in dramatically more workers being classified as employees protected under California’s stringent wage and hours laws.
In 2019, the U.S. Court of Appeals for the Ninth Circuit in Vazquez v. Jan-Pro Franchising Int'l, Inc., held (among other things), that the Dynamex decision had retroactive effect—meaning the ABC test would apply to classification status that existed before publication of the Dynamex decision. This could mean that employers would be liable for wage and hour violations for tens of thousands of workers classified as independent contractors under the then-existing rules. The Ninth Circuit subsequently withdrew its opinion and indicated that it would ask the Supreme Court of California to answer this question of state law itself. On November 21, the high court agreed to do so.
Separately, state law AB 5, enacted in September 2019—a law intended to codify and expand the Dynamex holding—is scheduled to go into general effect on January 1, 2020. Questions of retroactivity and how this sweeping law will be applied are likely to continue to dominate the California employment and labor law landscape.