In April 2018, the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court changed the way in which courts differentiated between an independent contractor and employee in California with regard to wage orders. On January 14, 2021, in Vasquez v. Jan-Pro Franchising, Inc., the California Supreme Court held the A-B-C independent contractor test (the A-B-C test) is retroactive.
In Dynamex, the Court overruled and replaced twenty years of precedent stemming from its 1989 decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, where the Court had adopted a common law test to determine independent contractor status. The new three-part test requires the worker to meet all of the following conditions to be considered an independent contractor:
(A) be free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
(B) perform work that is outside the usual course of the hiring entity’s business; and
©) customarily be engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
Under Dynamex there is a presumption that workers are employees, and the burden falls on the hiring entity to meet each of the three prongs to show that a worker is an independent contractor.
Following the Dynamex decision employers, courts and attorneys have struggled to determine whether the California Supreme Court meant for the A-B-C test to be applied retroactively to independent contractor status prior to the Dynamex decision. In Vasquez, the California Supreme Court characterized the Dynamex decision as resolving/interpreting an open legal issue, whether the Wage Order’s “suffer or permit to work” definition should be used to determine whether a worker qualified as an employee or an independent contractor and, therefore, ruled the A-B-C Test applies retroactively to wage orders.
Vasquez is a difficult blow for employers, gig workers and small business owners who previously enjoyed greater flexibility to design the terms of their commercial relationship. The statute of limitations for misclassification cases is four years. Thus, if a business hired workers it classified as independent contractors prior to the Dynamex decision that under the A-B-C Test would have been considered employees, such independent contractors now can bring misclassification actions.
If you are a business owner who hired independent contractors prior to the Dynamex decision that should have been classified as employees upon application of the A-B-C Test, contact your legal counsel to discuss strategies to minimize your company’s exposure to these claims.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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