The U.S. Court of Appeals for the Ninth Circuit has ruled the new standard that determines what constitutes an “employee” now applies retroactively.
The May 2 decision of the Ninth Circuit, in Vasquez v. Jan-Pro Franchising, Inc., has major implications for California employers who rely on independent contractors, including pool service companies and builders.
The decision means that the legal test created by the California Supreme Court in the Dynamex decision that makes it more difficult to classify a worker as an independent contractor, may now be applied not only to cases going forward, but also disputes from up to four years before the test was created.
The “ABC” test helps employers determine whether a worker is legally an employee or can be classified as an independent contractor. To prove that the worker isn’t an employee, a company needs to show: (A) the worker controls his own work; (B) the worker performs work outside of the scope of the company’s normal business; and (C) the worker works in an independently established occupation.
The ABC test replaced earlier legal criteria that made it easier for companies to classify workers as independent contractors, thus avoiding specific pay and benefit requirements.
The test can now be applied retroactively and may have a devastating financial impact to many businesses that misclassified their workers and may now face liability for multiple years of back wages and overtime compensation.
Nonetheless, in the Ninth Circuit’s opinion, Justice Frederick Block wrote that applying the Dynamex decision retroactively is consistent with California’s “legal tradition.”
He ruled that applying the Dynamex decision retroactively serves multiple purposes. It ensures that workers can provide for themselves and their families; it protects responsible companies from being hurt by unfair competition and substandard employment practices; and it benefits society as a whole by shielding California from having to support citizens who were paid substandard wages.
It is expected that Jan-Pro, the company involved in the Supreme Court’s ruling, will petition a re-hearing on the issue. The company’s lawyer said that the issue wasn’t correctly decided.
This ruling strongly re-emphasizes the strength and clarity of the ABC test, making it all the more difficult to find the loopholes.