Does the New ABC Test Apply Retroactively? Stay Tuned for Answers

Matthew Schechter

By now, you should all know about California’s Dynamex Operations West, Inc. v. Superior Court decision, which was the impetus for changing the state’s worker classification law. If you need a refresher on Dynamex and the ABC test, you may read more about it here.

When the California Supreme Court issued its Dynamex decision in 2018, it adopted the ABC test for determining whether a given worker is properly classified as an independent contractor or an employee. However, the Court did not decide whether the ABC test applied to those cases that pre-dated the Dynamex decision, or only applied prospectively. As such, its retroactive application has become a question for which nearly everyone is seeking an answer to the tune of several lawsuits and bills at the state Capitol.

So, does the ABC test apply retroactively? We may have an answer shortly, but as of now, there remains uncertainty.

Defining Retroactivity

What does it mean if the ABC test were to apply retroactively? Put simply, employers could be liable for wage and hour violations for workers classified as independent contractors under the previous standard (pre-Dynamex) – as far back as four years. If the ABC test were applied retroactively, it could open businesses up to much litigation and potentially substantial damages.

Ninth Circuit Attempts to Clear the Air, but Ultimately Punts to California Supreme Court

In the year following the Dynamex decision, litigation sprung up over the issue. Emerging from the pack was a decade-old case that originated in Massachusetts before making its way to California courts: Vazquez v. Jan-Pro Franchising, Intl.

In Jan-Pro, the plaintiffs worked as janitors for the defendant company, an international janitorial cleaning business. In their complaint, the plaintiffs alleged through a “three-tier franchising model,” Jan-Pro had misclassified them as independent contractors and that they should have been classified as employees. The California plaintiffs’ claims were redirected to a federal district court in California, which ultimately granted summary judgment in favor of Jan-Pro based on precedent from the 2010 Martinez v. Combs decision.

While Jan-Pro was on appeal to the Ninth Circuit, the California Supreme Court issued Dynamex and adopted the ABC test. Suddenly, a new issue popped up: although the new test was not law when these workers allege there was misclassification, but now that it is state law, may it apply retroactively to cover prior classifications?    

In May 2019, the Ninth Circuit concluded that Dynamex did apply retroactively, holding that “California law calls for the retroactive application of Dynamex” and that “applying “Dynamex retroactively was consistent with due process.” However, a few months later, while on petition for rehearing, the Ninth Circuit withdrew its Jan-Pro opinion. Instead, it certified the question of Dynamex’s retroactivity to the California Supreme Court. Then, in October 2019, a California appellate court, in Gonzales v. San Gabriel Transit, Inc., also ruled that Dynamex had retroactive application. The California Supreme Court granted review of the Gonzales decision as well, although it deferred briefing until it ruled in Jan-Pro

The California Supreme Court heard oral arguments in the Jan-Pro case on November 3, 2020, and a decision is expected sometime before the end of January 2021. However, during oral argument, there was some discussion about whether either side was even asking the Court to rule on the retroactivity question, certification notwithstanding, so there is a possibility that we will not get the answers we anticipate.

What has the Legislature Said?

Since Dynamex, the California legislature has sought to codify and expand upon the ABC test. They ultimately succeeded with AB 5 in 2019 and AB 2257 in 2020. Even so, the issue of retroactivity remains muddled.

AB 5, which took effect on January 1, 2020, specifically states that some sections apply retroactively. As to any claims that arise after January 1, 2020, AB 5 certainly applies. But, what about those claims that arose before AB 5 came into play, but after Dynamex was decided? To the extent AB 5 is intended to be a “clarification” of Dynamex, and as clarifications are typically seen as having retroactive application, then it should apply retroactively. Of course, it is not that simple. Under well-accepted rules on statutory interpretation, a statute will not apply retroactively unless there is an express retroactivity provision, or extrinsic sources make clear that retroactive application was the intent of the Legislature when it crafted the law. Further complicating matters is that  while the subdivision codifying Dynamex’s ABC test has no express retroactivity language, the subdivision pertaining to exceptions to the ABC test does have such language. Why is that significant? Because if the “legislature carefully employs a term in one statute and deletes it from another, it must be presumed to have acted deliberately.”

Conclusion and Looking Ahead

So, turning back to the question we started with – does the ABC test apply retroactively? – the answer is not as simple as one would hope. We may have an answer from the California Supreme Court by late January 2021 in the Jan-Pro case (assuming the Supreme Court chooses to decide the retroactivity question in the case). At the same time, with the Legislature’s reconvening on January 4, 2021, for its new session, it would not be a surprise to see a bill introduced seeking to codify the ABC test’s retroactive application into state law –similar to how it codified Dynamax with AB 5. Until then, however, given the current uncertainty, it would be safe to assume the ABC test does apply retroactively.

The next few months will prove pivotal, and for better or worse, we may have an answer on the test’s retroactive application once and for all.

About the author Matthew Schechter

Matt practices civil litigation with a particular emphasis on employment law.  He has represented Fortune 500 companies, small businesses, and individuals in state and federal courts.