Ninth Circuit Holds California’s “ABC” Independent Contractor Test Applies Retroactively

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Ninth Circuit Holds California’s “ABC” Independent Contractor Test Applies Retroactively

The Ninth Circuit has issued a concerning ruling for California employers that hire independent contractors. After the California Supreme Court’s decision in Dynamex Operations, Inc. v. Superior Court (link), in which the court ruled that subcontractor classification for the purposes of California’s Industrial Welfare Commission’s (IWC) wage orders was subject to the ABC test, many wondered whether this decision would apply retroactively. Despite business’s hopes that the decision would apply only to future cases, the Ninth Circuit held in Vazquez v. Jan-Pro Franchising International, Inc. (link) that the Dynamex decision would apply retroactively. This is (rightfully) a cause of concern for businesses that employ independent contractors as part of their business. Below, a breakdown of the background and implications of the legal decisions.

The “ABC” Test: Dynamex Operations, Inc. v. Superior Court

In April 2018, the California Supreme Court addressed whether California workers would be presumed employees or independent contractors in disputes under California’s Industrial Welfare Commission’s wage orders.  The California Supreme Court concluded that there was a presumption that workers are employees, and that for workers to be considered independent contractors, contractors must show that the independent contractors meet an “ABC” test. 

The ABC test requires that for an individual to be considered an independent contractor rather than an employee, the hiring company or individual prove all the below factors:

(1) the hiring entity does not have any control or direction of the worker connected with work performance, both in fact and under the work contract;

(2) the work performed by the worker is outside the hiring entity’s business’s usual course; and

(3) the worker customarily engages in a trade, occupation, or business that is independently-established and the same nature as the contracted work.

After the Dynamex decision was issued, many California employers worried about whether the decision would apply to classification disputes arising prior to the decision. While employers could take care to meet the standards set forth in Dynamex going forward, they were understandably concerned about whether subcontractors could be reclassified as employees in past cases where the test did not yet apply.

Ninth Circuit Makes “ABC” Test Retroactive: Vazquez v. Jan-Pro Franchising Int’l, Inc.

In May 2019, the Ninth Circuit took up the question of Dynamex’s retroactive application in Vazquez v. Jan-Pro Franchising Int’l, Inc. (link). The case concerned janitors of a California company who argued that they were actually employees rather than independent contractors, as they did not meet the ABC test set forth in Dynamex. The plaintiff’s claims arose prior to the Dynamex decision, so, naturally, the defendant’s principal argument was that the decision did not apply retroactively.

The Ninth Circuit disagreed with this argument, and concluded that the Dynamex decision applies retroactively to decisions preceding the Dynamex ruling. This means that the ABC test for classifying subcontractors applies to all California subcontractor classifications, even if the subcontractor was hired prior to the application of the ABC test by the courts.

What Does This Ruling Mean for Businesses with Independent Contractors?

The decision in Vazquez raises concerns for California companies that utilize independent contractors in their business. Because of the Ninth Circuit’s ruling, companies face legal disputes from subcontractors hired before the Dynamex decision. This means that a company may find itself the subject of litigation for not meeting a test that was not even in existence at the time the subcontractor was hired.

This should be concerning to California businesses that utilize independent contractors in their work, especially if they were hired before the Dynamex decision. If you are a hiring entity who is facing this situation, please contact the experts at Legalinfo.com for advice and help. We can use our legal knowledge to help defend your case, and we can advise you on the best hiring practices going forward so that you remain in compliance with all requirements.

 

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