Breaking News: The ABC Test is Retroactive

In April 30, 2018, the world of employment law was shaken by the decision of the California Supreme Court to apply a stricter standard for determining whether a worker was an employee or independent contractor. The new standard, set forth in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, is known as the ABC Test.

Soon after the California Supreme Court published its landmark decision of Dynamex Operations W. v. Superior Court, (2018) 4 Cal. 5th 903, 962 (“Dynamex”), the law firm of Davis & Wojcik APLC experienced an influx of employer consultations at a rate never before experienced by a single court ruling. The immediate application of the ABC Test caught many employers by surprise, and they were eager to know how Dynamex would impact their business. Their concern was well-founded.

Immediately after the Dynamex decision was published, the employment world was left wondering whether the ABC Test would be applied retroactively. Thanks to the U.S. Court of Appeals for the Ninth Circuit, we now have an answer.

On May 2, 2019, the U.S. Court of Appeals ruled:

“Applying Dynamex retroactively is neither arbitrary nor irrational… (T)he California Supreme Court embraced the ABC test and found it to be “faithful” to the history of California’s employment classification law ‘and to the fundamental purpose of the wage orders.’ By applying Dynamex retroactively, we ensure that the California Supreme Court’s concerns are respected.”

This decision has major implications for California employers currently facing lawsuits over independent contractor misclassification. Many employers held out hope that either the judiciary or legislature would provide a safe harbor period as they had before.

For example, in 2015, the legislature passed AB 1513 to codify appellate court decisions in Gonzales v. Downtown LA Motors, 215 Cal. App. 4th 36 (2d App. Dist. Mar. 6, 2013) and Bluford v. Safeway, Inc., 216 Cal. App. 4th 864 (3d App. Dist. May 8, 2013), by creating Labor Code § 226.2. The law did not take effect until January 1, 2016 and employers were provided a safe harbor period to pay piece-rate employees for missed rest periods. No such grace period was provided with Dynamex and it became effective overnight.

In the case of Selden v. Verican, Inc., et al. (MCC 1700745), the law firm of Davis & Wojcik successfully used the ABC Test to prevail on a Motion for Summary Adjudication only six months after Dynamex. The Superior Court’s ruling eliminated the employer’s one and only defense against the alleged wage and hour violations. We are confident that the Court would have reached the same conclusion under the traditional test of Borello & Sons v. Department of Industrial Relations (1989) 48 Cal.3d 341, 349 (“Borello”), however, this exemplifies the immediate impact of Dynamex on California employers.

One thing is for certain, employers who use independent contractors must immediately consult with an employment law attorney to determine whether they are in compliance with the law. The legislature has already begun the process of making the ABC Test permanent. Make no mistake, it is here to stay and ignorance will not be an excuse.

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