Federal Appeals Court Rules New Independent Contractor ABC Test Applies Before It Existed
Industries and employers throughout California have been grappling since April 2018 with the effect of Dynamex Operations West, Inc. v. Superior Court on their independent contractor relationships. Rejecting a multi-factor standard that had been in place since 1989, the California Supreme Court in Dynamex required employers to prove all three prongs of a newly-adopted ABC test to justify classifying workers as independent contractors. See Independent Contractor Status in California Now Falls Under Radically Different Rules (June 2018).
When asked to rule if the ABC test applied retroactively, the California Supreme Court declined. Since then, some lower California courts have ruled that it does, for example, Garcia v. Border Transp. Grp and Johnson v. VCG-IS, LLC.
Now, the Ninth Circuit federal appeals court has ruled that the ABC test is retroactive in Vazquez v. Jan-Pro Franchising International, a case that was originally filed in 2008, 10 years before the Dynamex decision. The court made little of the financial chaos and unfairness that retroactive application of ABC would cause and Jan-Pro’s reliance on the previously existing rules. Instead, the court endorsed retroactivity for multiple reasons, finding: (1) retroactivity is standard for court decisions: (2) California courts would rule that way and some, albeit lower courts, have already done so; (3) workers and their families must be protected; and (4) employers with substandard practices should not gain a competitive advantage as a result.
Employers with independent contractors should have taken notice to review those relationships a year ago when the Supreme Court issued Dynamex. If they did and changed such classifications as warranted by ABC, their retroactive liability under pertinent statutes of limitations is decreasing over time. Any employers who have not conducted review so should not delay. Any liability can continue back for up to four years from the date of any misclassification claim.
Stay tuned. The California legislature is currently considering competing bills on the long-term application of the ABC standard. See, California Legislature Dealing with Competing Proposals to Kill or Expand New Dynamex Test (April 2019).
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Helena Kobrin
May 31, 2019