On November 20, 2019, the California Supreme Court finally agreed to take up the question of whether the landmark Dynamex independent contractor decision applies retroactively. In April 2018, the California Supreme Court adopted the “ABC” test for determining whether a worker is an independent contractor or employee for purposes of certain wage and hour rights. Under this stringent test, a worker is presumed to be an employee unless the hiring entity can establish: (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 terms of the contract and in fact; (b) the person performs work that is outside the usual course of the hiring entity’s business; and (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 standard is far more difficult to meet than the prior balancing test. What the Court did not do – and, in fact, expressly declined to do – was rule on whether or not the newly adopted ABC test applied only prospectively from April 2018 or whether it also applied retroactively. While California codified the ABC test into law with Assembly Bill 5, that measure goes into effect on January 1, 2020.
As a result, the California Supreme Court decision on retroactivity will have a large impact on any company that has any workers in California that they classify as independent contractors. If the Court determines the test applies retroactively, that opens the door to years more of potential liability for wage and hour claims based on alleged misclassification under a test that companies had no reason to believe would ever become the law in California even if the workers met the prior balancing test.