By Nicholas Grether, Esq., The Maloney Firm, APC

In 2018, the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, 416 P. 3d 1 (2018), seemingly established a bright-line rule for using independent contractors in California.  Under the ABC Test created by the Supreme Court in Dynamex, a worker is considered an employee and not an independent contractor, unless the employer can prove that the following conditions are met:

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• (A) The person 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.
• (B) The person performs work that is outside the usual course of the hiring entity’s business.
• (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

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Despite the seemingly rigid nature of the ABC test, some key questions were left unanswered.  Would there be any exemptions for professions where workers typically operate as independent contractors?  What about the app-based gig economy?  Does the Dynamex decision apply retroactively? 

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AB 5, AB 2257, and Prop. 22

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To answer the first question, in 2019, the California Legislature passed AB 5, which codified Dynamex and the ABC test in the California Labor Code.  AB 5 was amended in September 2020 by AB 2257 to add additional exemptions.  For more on AB 2257 and the exemptions, click here.

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On Election Day, California voters chose to provide app-based businesses such as Uber and Lyft with an additional exemption allowing their drivers to be considered independent contractors by passing Proposition 22.^[1] The new exemption applies to app-based rideshare and delivery drivers and provides the drivers with a healthcare subsidy, a minimum earnings guarantee, compensation for vehicle expenses, and insurance to cover on-the-job injuries.  While opponents of Proposition 22 argued that this does not go far enough and only applies to companies like Uber, Lyft, and DoorDash, the drivers will now be considered independent contractors.

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Does Dynamex Apply Retroactively?

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Election Day also brought us a step closer to whether or not the decision in Dynamex will operate retroactively.  On Tuesday morning, the California Supreme Court heard oral argument in Vazquez (Gerardo) et al. v. Jan-Pro Franchising International, Inc., S258191, to answer that question.  While the general rule is that judicial decisions apply retroactively, California makes an exception for when a decision changes a settled rule.  The attorneys argued as to whether Dynamex was a change in the law or if it simply created a brighter line to clarify and develop existing law.  Now that oral argument is complete, we wait on the California Supreme Court to rule on the issue. 

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What Can Businesses Do? 

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As always, having clear policies and employment agreements will be useful in the event there is any litigation over classifying workers as independent contractors. Consult with employment attorneys to determine if any of the exemptions apply.  Use common sense.  Does your business expect to have any control over the contractor?  What type of work is the contractor performing? If the business has in the past or continues to use independent contractors, make sure to consult with an employment attorney to assess any potential for liability. 

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While the success of Prop. 22 has demonstrated that large businesses are increasingly able to create their own employment laws, the same is unlikely to be true with smaller California businesses. Indeed, many industry and trade groups sought exemptions with little success and the California Legislature is likely to remain hostile to using independent contractors except in very limited situations.

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About the Author:

Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this article, contact Nicholas Grether at ngrether@maloneyfirm.com.

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^[1] https://www.cnn.com/2020/11/04/tech/california-proposition-22/index.html

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