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California Supreme Court Rules Dynamex Is Retroactive

The California Supreme Court's recent ruling in Vazquez confirms that the ABC test applies to conduct prior to the Dynamex ruling in April 2018.

In a long-awaited decision, on Thursday, January 14, 2021, the California Supreme Court unanimously held that the decision in Dynamex Operations W. v. Superior Court (2018) 4. Cal.5th 903, applies retroactively. See Vazquez v. Jan-Pro Franchising International, Inc., No. S258191 (Jan. 14, 2021).

This decision comes two years after the California Supreme Court authored a new legal standard to determine whether an individual is an independent contractor or an employee for purposes of the California wage orders. In Dynamex, the Court held that individuals are presumed to be employees unless the hiring entity can demonstrate each of the following:

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

This three-factor test, commonly referred to as the "ABC test," is difficult to meet and forces both California businesses and individuals to reevaluate whether their independent contractor relationships are proper. However, the high court did not address whether the Dynamex decision would be applied retroactively, a question which the U.S. Court of Appeals for the Ninth Circuit certified to the California Supreme Court in July 2019.

The California Supreme Court's decision in Vazquez has finally answered the Ninth's Circuit question in the affirmative—Dynamex applies retroactively. The high court explained that Dynamex did not overrule any prior California Supreme Court decision or disapprove of a previous California Court of Appeal decision, nor did it "change a settled rule on which the parties below had relied." Ultimately, the California Supreme Court found "no reason to depart from the general rule that judicial decisions are given retroactive effect." The decision is significant because it immediately subjects companies to the full three-year statute of limitations for unpaid wages under the California Labor Code and four-year statute of limitations under the California Unfair Competition Law.

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