In 2018, the California Supreme Court drastically changed the employment law landscape in California by adopting the “ABC Test” for determining whether workers are employees ( and not independent contractors) under California wage order laws:
Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity. (Dynamex Ops. W. Inc. v Superior Court (2018) 4 Cal. 5th 903, 916-917 )
Left undetermined was whether the Court’s decision should apply retroactively.
That question was answered by the Ninth Circuit Court of Appeals in Gerardo Vazquez Gloria Roman and Juan Aguilar etc. vs Jan-Pro Franchising International, Inc., ( Case No. 17-16096, filed May 2, 2019) . In a 48-page opinion, the appellate court not only held that the “ABC Test” applies retroactively, but provided guidance to the trial court on its application on remand.
Looking to California case law, the Ninth Circuit noted that “[a]s the Supreme Court of California has explained, it ‘is basic in our legal tradition’ that ‘judicial decisions are given retroactive effect.’” (Id. at Slip Opinion at 22.)
More particularly, the appellate court stated:
At times, the California Supreme Court has stated that there is an exception to the rule of retroactivity “when a judicial decision changes a settled rule on which the parties below have relied.” Williams & Fickett v. Cty. of Fresno, 395 P.3d 247, 262 (Cal. 2017)(quoting Claxton v. Waters, 96 P.3d 496, 503 (Cal. 2004)). The court has said that ‘[p]articular considerations relevant to the retroactivity determination include the reasonableness of the parties’ reliance on the former rule, the nature of the change as substantive or procedural, retroactivity’s effect on the administration of justice, and the purposes to be served by the new rule.” Id. (quoting Claxton, 96 P.3d at 503). (Id. at 23.)
The appellate court pointed out, as did Plaintiffs, that the Supreme Court denied a petition without comment to clarify whether its opinion was retroactive and that, indeed, the lower courts are applying it retroactively. (Id. at 24. ) While usually, nothing should be inferred from the Court’s denial without comment, here, it may well speak volumes. (Id.)
The appellate court also rejected a due process challenge finding that to apply the test retroactively, is neither arbitrary nor irrational. (Id. at 26-27.) Rather, the court believed that to apply it retroactively would “…ensure that the California Supreme Court’s concerns are respected.” (Id. at 28.)
The Ninth Circuit then turned its attention to the facts of the case and offered guidance to the lower court on how to apply the test on remand. ( Id. at 29-48.)
Of equal importance to this decision is a bill – Assembly Bill 5– currently in the California legislature that would codify the ABC Test:
Section 2750.3 is added to the Labor Code, to read:
(a) For purposes of the provisions of this code and the Unemployment Insurance Code, where another definition or specification for the term “employee” is not provided, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee unless the hiring entity demonstrates that all of the following conditions are satisfied:
(1) 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.
(2) The person performs work that is outside the usual course of the hiring entity’s business.
(3) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Section (b) of the proposed legislation provides that the “ABC Test” will not apply to certain occupations including, a person or organization licensed by the Department of Insurance, a physician, a surgeon, a securities broker-dealer or investment adviser or their agents or representatives, or a direct sales salesperson as described in section 650 of the Unemployment Insurance Code. These groups will be governed by the test in S. G. Borello & Sons, Inc. v Department of Industrial Relations (1989) 48 Cal. 3d. 341.
Currently, after undergoing certain amendments, the bill has been re-referred to the House Committee on Appropriations.
Stay tuned for further developments.
… Just something to think about.