California Supreme Court Rules That ABC Test Applies Retroactively

On January 14, the California Supreme Court held in Vazquez v. Jan-Pro Franchising International that the ABC test set forth in the 2018 Dynamex Operations West v. Superior Court case will be applied retroactively. The case involved a group of janitors who sued a three-tier business model franchise company alleging they were misclassified as independent contractors and thus, not provided employee protections such as minimum wage, overtime, or health insurance. Employers in California must evaluate the factors set out in the ABC test to determine if a worker is properly classified as an independent contractor. This ABC test was created by the California Supreme Court in the Dynamex case, and the California Legislature approved Assembly Bill 5 (AB 5), which sets out the ABC test parameters and became effective January 1, 2020. The remaining issue from Dynamex was whether the ABC test would apply to matters that had not been finalized.

The Dynamex ABC test requires an analysis of the following factors:

  • The worker 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;
  • The worker performs work that is outside the usual course of the hiring entity’s business; and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Worker classification in California has been a hot topic for some time. During the 2020 election, California voters approved a ballot initiative pushed by Uber, Lyft, and DoorDash to classify drivers (gig economy workers) as independent contractors. There are a number of other cases pending in the California courts as well that will continue to provide guidance on how the ABC test will apply in practice.

Given California’s stringent requirements for classifying a worker as an independent contractor, employers that utilize workers in California as independent contractors are encouraged to revisit those arrangements to ensure they meet the ABC test requirements or determine whether an exception under AB 5 applies. The California team at Employers Council is available to assist our members in analyzing these relationships. For more information, please contact us at CAInfo@employerscouncil.org.