Posted: January 22, 2021 | News
Nearly three years ago, the California Supreme Court issued a landmark decision on the issue of independent contractors. The decision in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903 (Dynamex), altered the analysis of whether a worker can be properly classified as an independent contractor or must be classified as an employee.
The decision was subsequently enacted into the California Labor Code in Assembly Bill 5 (AB-5) as of January 1, 2020. AB-5 codified the holding in Dynamex into Labor Code section 2750.3.
The new standard created by Dynamex and incorporated in Labor Code section 2750.3, provided that a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all the following conditions are satisfied:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
This new standard has been referred to as the “ABC Test” for determining whether a worker can be properly classified as an independent contractor.
The “ABC Test” appeared to be a marked departure from the prior multi-factor independent contractor standard the Supreme Court had previously set forth in S.G. Borello & Sons v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).
As such, there was significant uncertainty whether the Dynamex decision would be retroactively applied to claims and cases pending prior to that decision. The Ninth Circuit was facing this analysis and given the level of uncertainty asked the California Supreme Court to advise on whether the decision applied retroactively.
On January 14, 2021, the California Supreme Court issued its guidance to the Ninth Circuit in the case of Gerardo Vazquez et al. v. Jan-Pro Franchising International, Inc., California Supreme Court Case number S258191.
In Vazquez, the California Supreme Court determined that Dynamex must apply retroactively to all claims and cases pending as of the Dynamex decision in 2018. The Court explained that the “decision in Dynamex did not overrule any prior California Supreme Court decision or disapprove any prior California Court of Appeal decision.”
The Court reasoned that the Dynamex decision was the first time that it had been called upon to issue a decision regarding the proper definition of “employ,” within the meaning of the California Industrial Welfare Commission Wage Orders. The Wage Orders, which govern each industry in the State of California all employ the definition of the term “employ” in part to mean “suffer or permit to work” and define the term “employee”” to mean “any person employed by an employer.”
The Vazquez decision reasoned that the Dynamex decision was an authoritative judicial interpretation regarding the meaning of “suffer or permit to work.” The Vazquez decision explains that because this was the first interpretation of this language, under well-established jurisprudential principles, the Dynamex decision must retroactively apply to all cases still pending when the Dynamex decision was issued, if those cases involve a Wage Order with the same definition.
The Vazquez decision further strengthens the ABC Test. This decision will likely only increase the efforts of Plaintiff attorneys to bring litigation claiming that independent contractors should have been classified as employees.
Any businesses that utilize independent contractors should seek guidance to determine if and how those contractors are properly classified as such under the ABC Test.
If you have any questions or concerns regarding whether your company and its use of independent contractors is compliant with current law, the attorneys at Ferruzzo & Ferruzzo, LLP are available to provide guidance.
This blog is not meant to provide specific legal advice. For advice specific to your business, please contact any of the employment attorneys in our Employment Practices Group who are ready to assist you.