California Supreme Court to Decide Whether New Independent Contractor Test Applies Retroactively

July 26, 2019

The federal Ninth Circuit Court of Appeals has withdrawn its previous decision that the California Supreme Court's Dynamex ruling, which made it harder for businesses to classify workers as independent contractors, applies retroactively, and returned the case to the state’s highest court to make the decision.

In Dynamex, the California Supreme Court overturned the state’s existing employment classification test in favor of a stricter standard known as the “ABC test,” which presumes workers are employees unless an employer can show that the workers work outside the employer's usual course of business, among other factors.

According to the Ninth Circuit:  “Given the strong presumption of retroactivity, the emphasis in Dynamex on its holding as a clarification rather than as a departure from established law, and the lack of any indication that California courts are likely to hold that Dynamex applies only prospectively, we see no basis to do so either.”

Bad news/good news:  Although there is a good chance the California Supreme Court will rule the new ABC test applies retroactively, a bill (AB 5) is moving through the state legislature that recognizes the potential disruption a strict ABC test would have on the economy and would exempt some occupations from the test.  However, even if the measure is enacted, it is unclear how many occupations will eventually be excluded in the final bill.