Dynamex ABC test can be used retroactively in worker classification litigation

The ABC provisions of the Dynamex decision in California can be applied retroactively, according to a decision handed down Thursday by the California Supreme Court.

The ruling has implications for any worker classification court battles, including those for drivers or other logistics employees, going back before the April 30, 2018, decision issued in the case of Dynamex Operations West v. Superior Court. 

Before the Dynamex decision was handed down, worker classification litigation in California — and elsewhere — tended to look toward the so-called Borello test, which is viewed as more lenient in answering the question whether a worker is an employee or a true independent contractor. 

The ABC test was seen as effectively overruling use of the Borello test in California. But since employee classification lawsuits can go on for years, there are expected to be worker classification cases still making their way through the courts that were focused on activities prior to April 2018 but now can be litigated or settled with the ABC test as part of the mix.

The California case that extended the reach of the ABC test is Vazquez v. Jan-Pro Franchising International. California’s Supreme Court, in its unanimous decision, said it had been asked by the Court of Appeals for the 9th Circuit to take up the question of retroactively applying Dynamex.

In its ruling, the court said that Dynamex did not overturn any prior precedents, though the Borello test had been looked to for guidance. The Dynamex decision, the court wrote, “did not change a settled rule on which the parties (in the lawsuit) had relied.”

The language in California’s labor law about employee classification is called “suffer or permit to work.” The court ruled that there had not been any decision regarding that rule defining how “California’s wage orders should be applied in distinguishing employees from independent contractors.”

Since there hadn’t been that rule previously — Borello was from a ruling in Massachusetts but was not a California-created legal standard — “we see no reason to depart from the general rule that judicial decisions are given retroactive effect,” the court wrote. 

For trucking companies, the so-called B prong of the ABC test has the potential to be  problematic for the use of independent owner-operators. The B prong says determining whether a worker is an employee or contractor needs to consider whether “the worker performs work that is outside the usual course of the hiring entity’s business.” A trucking company hiring a truck driver is clearly not outside the usual course of the business; a trucking company hiring an outside accountant for financial services is.

Starting with a New Year’s Eve decision in 2018, a lawsuit by the California Trucking Associaton has kept AB5 from being implemented in the Golden State. But if the injunction obtained by the California Trucking Association is lifted, which is seen as a distinct possibility as it is being reviewed by a three-judge panel, the B prong would now have a triple whammy for the California trucking sector. It would be law; would be part of the body of law for new litigation over worker classification, as it has been since April 2018; and would now be retroactive for past cases on worker classification. 

Those three layers of the B prong impact would govern California trucking short of a repeal or by the state Legislature granting an exception for trucking, like other industries have received. That would be considered highly unlikely, given that trucking was one of AB5’s main targets. The other main targets were ride-sharing and food delivery services like Uber and DoorDash, but the success of Proposition 22 on Election Day ended AB5’s role in those industries.

The plaintiff in the case reviewed by the California Supreme Court argued that its actions should be judged by the Borello test, since Dynamex and its ABC standard were not in effect during the period being litigated in the suit. (Note that the ruling on the retroactivity of Dynamex was handed down by the same court that created the ABC test in the first place.)

But employers should be aware that the court doesn’t view Dynamex as being radically apart from Borello, the court said. “Even if we were to give weight to defendant’s reliance argument (on Borello) at this juncture, it bears repeating that the test we ultimately adopted in Dynamex drew on the factors articulated in Borello and was not beyond the bounds of what employers could reasonably have expected,” the court wrote.  

Greg Feary, president and managing partner of the trucking-focused law firm of Scopelitis Garvin Light Hanson & Feary, said in an email to FreightWaves that the decision comes as no surprise “based on the language of the court’s decision in the case in chief.”

“The court justified in its original decision that the social welfare principles being protected under California Wage Orders (specifically Wage Order No. 9) require the application of a test that will be most inclusive to protect as many workers as employees,” he wrote. “Therefore, the court signaled its view that the DNA of the wage law mandated the ABC test, and yesterday’s retroactivity decision logically flows from that thinking.”

In a commentary on the decision posted on the Lexology legal blog, attorneys James Carter and Kelli Winkle of Jackson Lewis PC said any firms that were defending worker classification suits thinking Borrelo was going to be the guiding principle for activities prior to April 2018 “should reevaluate those issues under the more demanding ABC Test rather than rely on the more favorable, but outdated Borello test.”

“And for those lucky employers not facing misclassification litigation at the moment, the Vazquez decision justifies company worker classification audits looking back beyond 2018,” they added.

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