ABC Test Retroactivity Remains An Open Issue After Vazquez

The California Supreme Court last month issued its decision in Vazquez v. Jan-Pro Franchising International Inc.¹ holding that the court's 2018 decision in Dynamex Operations West Inc.² applies retroactively.

The Vazquez decision was highly anticipated, because the central issue of the proper test for determining whether or not a worker is an employee is critically important to thousands of California businesses and workers.

The Dynamex decision adopted a brand new test for determining whether a worker is an employee rather than an independent contractor.

The test adopted by the Dynamex court, known as the ABC test, dramatically expanded the number of workers who are considered employees under California law, and will accordingly impose substantial new burdens on California businesses going forward.

Applying Dynamex and the ABC test on a retroactive basis will increase those burdens exponentially. As the U.S. Court of Appeals for the Ninth Circuit has observed:

[T]he question of Dynamex's retroactive application has potentially broad ramifications for those who have been doing business in California … [and] could lead to greater liability in economic sectors that rely more heavily on independent contractors.³

The Ninth Circuit's statement actually understates the impact of Vazquez, which has the potential to affect every aspect of employment and business in California by reclassifying huge swaths of workers retroactively.

Because the issues in Vazquez were so critical, numerous parties filed amicus briefs with the California Supreme Court, including the California Chamber of Commerce, the U.S. Chamber of Commerce and the International Franchise Association.

While a decision from the California Supreme Court on an issue of California law is the final word on the specific legal issue it addressed, the Vazquez decision's holding on retroactivity arguably did not resolve the more significant question: whether California employers can be held liable for not complying with the ABC test before Dynamex was decided in 2018.

The reason for this uncertainty is that after the court decided Dynamex, the California Legislature codified it in a comprehensive piece of legislation known as A.B. 5.

And in A.B. 5, the Legislature chose not to apply the ABC test on a retroactive basis.

This article sketches out a potential path to eliminating the negative impact that Vazquez will have on California businesses.

The path was created by the Vazquez court's failure to consider the impact of A.B. 5 on Dynamex's continuing vitality, including any retroactive effect it might have.

Settled California law and the intent of the Legislature in enacting A.B. 5 show that the ABC test may not be applied on a retroactive basis.

The California Supreme Court held in 1985's I.E. Associates v. Safeco Title Insurance Co. that when the Legislature "intends to cover the entire subject or, in other words, to 'occupy the field,'" the statute it has enacted will supplant judge-made law on the subject.⁴ Specifically:

[G]eneral and comprehensive legislation, where course of conduct, parties, thing affected, limitations and exceptions are minutely described, indicates a legislative intent that the statute should totally supersede and replace the common law dealing with the subject matter.⁵

There is no question that A.B. 5 is precisely the type of general and comprehensive legislation that was intended to occupy the field.

A.B. 5 is an extensive, highly detailed piece of legislation that covers the waterfront with respect to the employee and independent contractor determination under California's labor laws.

It not only codifies the court's Dynamex decision, and adopts verbatim the ABC test announced by the Dynamex court, but also (1) expands the holding of Dynamex — which only covered claims under California's Wage Orders — to claims under the Labor Code and the Unemployment Insurance Code, and (2) simultaneously limits the reach of Dynamex by exempting dozens of specific businesses from the application of the ABC test.

As a result, A.B. 5 "totally supersede[s] and replace[s]" Dynamex, which no longer has independent vitality.

The relevant question therefore becomes not whether Dynamex applies retroactively, but whether A.B. 5 does.

Because there is a strong presumption against the retroactive application of statutes, a statute will not be applied retroactively unless it contains, as per 1988's in the California Supreme Court, "an express retroactivity provision" or it is "very clear from extrinsic sources that the Legislature … must have intended a retroactive application."⁶

There is no "express retroactivity provision" in A.B. 5, nor are there any "extrinsic sources" that would supply a "very clear" indication of retroactive intent.

Indeed, A.B. 5 expressly provides that its provisions shall apply to work performed on or after Jan. 1, 2020.

A.B. 5 accordingly does not apply on a retroactive basis, and the Legislature must be deemed to have intended the usual rule of prospective-only application of statutes to apply.

The question left unaddressed by Vazquez — the impact of A.B. 5 on Dynamex — therefore has a clear answer: Because A.B. 5 supplants Dynamex, and A.B. 5 does not apply retroactively, the ABC test cannot apply on a retroactive basis.

Any other outcome would be inconsistent with California law and would frustrate the intent of the Legislature.

To be sure, some courts may be reluctant to adopt the approach outlined above.

They may reason that the California Supreme Court has declared that Dynamex applies retroactively, and that this argument essentially nullifies that decision.

But that reasoning overlooks that Vazquez did not decide the question logically antecedent to any retroactive application of Dynamex: whether Dynamex retains any independent force at all after the passage of A.B. 5.

That question has never been decided by any court.