What’s on the horizon for independent contractors in California?

The scope of Dynamex is still unknown.

The California Legislature and the U.S. Court of Appeals for the Ninth Circuit continue to hold employers and independent contractors in limbo as they struggle to apply the "ABC Test" for determining whether a worker is an employee or an independent contractor.

Last year, in Dynamex Operations West v. Superior Court, the California Supreme Court adopted the ABC Test, which presumes that all workers are employees, unless the hiring entity can prove all of the following:

(A) The worker is free from control and direction of the hiring entity in connection with the performance of the work, both in contract and in fact.

(B) The worker performs work that is outside the usual course of the hiring entity’s business.

(C) 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.

Because the Dynamex decision was limited to the Wage Orders, it was not clear whether courts would apply the ABC Test in other contexts -- such as in a workers’ compensation case -- or whether the decision would apply retroactively.

In May, the Ninth Circuit addressed the retroactivity issue and held in Vazquez v. Jan-Pro Franchising International that Dynamex applied retroactively -- meaning that California employers could face substantial financial penalties for "misclassifying" workers years before the state Supreme Court adopted the ABC Test.

But very recently, the Ninth Circuit withdrew the Vazquez decision, and said it would ask the California Supreme Court to say whether the ABC Test should apply retroactively. Meanwhile, California employers and independent contractors are left with no guidance.

The California Legislature has added further uncertainty by introducing Assembly Bill 5. AB 5 would codify the ABC Test for purposes of the California Labor Code, Wage Orders, and Unemployment Insurance Code. (The Legislature plans to address the Workers’ Compensation and Insurance Code at a later date.)

AB 5 carves out numerous exceptions for workers in certain industries, including healthcare, insurance, real estate, direct sales, cosmetology, and construction. These exceptions all come with their own tests, which may be confusing or problematic for many reasons.

Members of the Legislature have expressed an interest in clarifying whether the ABC Test applies retroactively. But the current draft of AB 5 is silent on this issue.

The Legislature will vote on AB 5 in September. Until then, the full impact of the ABC Test in the Golden State remains to be seen.

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