In Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, the California Supreme Court adopted the so-called “ABC test” for determining whether workers are independent contractors or employees under California’s wage orders. Under the ABC test, in order for a hiring entity to establish a worker is an independent contractor, it must prove all three of the following elements:
- The worker is free from the control of the hiring entity in connection with work performance — both under the parties’ contract and in fact;
- The worker performs work outside the hiring entity’s usual business; and
- The worker is customarily engaged in an independent business of the same nature as the work performed.
In Vazquez v. Jan-Pro Franchising Int’l, Inc. (9th Cir. 2019), — F.3d –, decided on May 2, 2019, the Ninth Circuit ruled that the ABC test for determining independent contractor status applies retroactively to matters arising prior to the Dynamex decision. The Ninth Circuit found the retroactive application of judicial decisions is a well-established concept in California law. In so ruling, the Ninth Circuit quoted an oft-cited statement by the late U.S. Supreme Court Chief Justice William Rehnquist: “The principle that statutes operate only prospectively, while judicial decisions operate retrospectively, is familiar to every law student.”
Not only did the Vazquez court hold that the Dynamex ABC test applies retroactively, the court also provided significant guidance to the trial court with respect to the manner in which it should apply the test upon remand. Specifically, the Vazquez court noted that prongs A and C of the Dynamex decision are typically fact-based inquiries and, therefore, generally are not susceptible to summary judgment. Prong B, however, is the most prone to summary judgment. In considering prong B, the Vazquez court counseled that “[a] common test for comparing the businesses of a hiring entity and a putative employee is to see whether the putative employees were ‘necessary’ or ‘incidental’ to the hiring entity’s business. In some cases, this inquiry can be conducted through a common-sense observation of the nature of the businesses.” The Vazquez court surveyed authorities from other jurisdictions and found that courts have taken two approaches to the “necessary” vs. “incidental” dichotomy: Is the hiring entity dependent on the work of the putative independent contractor – either functionally or economically – to achieve its own business model. If yes, the worker is most likely an employee. If no, the worker may be an independent contractor subject to the hiring entity also meeting the A and C prongs of the Dynamex test.
The issue of the proper classification of workers as employees or independent contractors is one that will continue to be a cutting-edge topic for some time. Currently, the legislature is considering two competing bills on the subject. Under AB 5, the Dynamex ABC test would be codified as the controlling standard for defining who is an employee for all purposes under both the Labor Code and Unemployment Insurance Code. In contrast, AB 71 would codify the multi-factor “economic realities” test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 342 as the controlling legal standard for determining independent contractor status. Regardless whether one or neither of these bills is adopted by the Legislature, the subject of the proper classification of workers as employees or independent contractors will continue to be a difficult subject for employers.
Questions
The Kronick Labor and Employment team will continue to update this subject as developments warrant and are available to answer any questions you have on this or any other labor or employment-related question.
David Tyra
dtyra@kmtg.com | 916.321.4594