California Rules 'ABC' Independent Contractor Test Applies Retroactively

In Dynamex Operations West, Inc. v. Superior Court 4 Cal. 5th 903 (2018), the California Supreme Court held that any individual who performs work for a person or entity is presumed to be an employee who falls within the protections afforded by California’s Labor Code and Wage Orders. 

It further held that the presumption can be rebutted and a worker can be shown to be an independent contractor if the hirer is able to make three showings, commonly referred to as the “ABC Test”:

  1. that the worker is free from the control and direction of the hirer in connection with the performance of the work;
  2. that the worker performs work outside the usual course of the hiring entity’s business; and
  3. that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Before the Dynamex decision, California courts applied the standard set forth by the California Supreme Court in S.G. Borello & Sons v. Department of Industrial Relations, 48 Cal.3d 341 (1989), which examined how much control an employer exerted over a worker by looking at a number of factors. Dynamex, however, left unanswered the question of whether the Dynamex test or the Borello test applies to claimed misclassifications of independent contractors that predated Dynamex.

On January 14, 2021, in Vasquez v. Jan-Pro Franchising International, (Cal., Jan. 14, 2021, No. S258191) 2021 WL 127201, the Supreme Court held that the independent contractor test in Dynamex applies retroactively to all cases that are not final as of the date Dynamex was issued. The Court reasoned that Dynamex “did not change a settled rule on which the parties below had relied”, since no decision prior to Dynamex had determined how the “suffer or permit to work” definition in California’s wage orders should be applied to the issue of whether a worker was an employee or an independent contractor. Thus, the Court concluded, there was no reason to depart from the general rule that judicial decisions are to be given retroactive effect.

The Court’s decision in Vasquez means that that lower courts must analyze independent contractor misclassification claims under the Dynamex test for all cases that were not final as of the date Dynamex was decided, even if they involve facts that occurred prior to Dynamex.

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