The California Supreme Court’s ruling regarding the findings of the Ninth Circuit Court of Appeals in Vazquez v. Jan-Pro Franchising International, Inc., has determined decisively that the recently implemented ABC test for independent contractors is retroactive to April 30, 2018 for California employers and those providing work to independent contractors. Many California employers and companies across the United States with offices in California have been concerned about the recent California Supreme Court decision and the impact it would have upon independent contractors.
In this case, the defendant (an international janitorial cleaning company) lost, resulting in a summary judgment on minimum wage and unpaid overtime claims stemming from the plaintiff’s allegations that janitors were actually misclassified as independent contractors under the company’s three tier franchising model.
What is the ABC Test to Determine the Question of “Employee or Independent Contractor?”
This decision closely relates to the landmark California Supreme Court decision which established a new legal framework regarding the nature of employment in California as well as a three pronged “ABC Test.” Specifically, the ”ABC” test requires any provider of work (hiring entity) in California to establish all of the following three factors if a worker is to be classified as an independent contractor:
(A) that the worker 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; and
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
This important case has established a legal presumption that all workers in California to be “employees” and the legal burden of proof falls on the employer to prove otherwise using the above ABC Test.
From Here Forward or Retroactive?
How would this recent decision be applied to the Vazquez v. Jan-Pro Franchising International, Inc. case. Would the court consider the summary judgement to be retroactive to April 30, 2018?
The defendant extensively argued the new ABC standard did not apply to their case and could not be applied retroactively. The Ninth Circuit disagreed, concluding in fact the ruling establishing the ABC test was simply “clarifying” existing law, not establishing new law. The case has been decided, resulting in orders that recently implemented ABC test for independent contractors is retroactive to April 30, 2018 across the State of California.
What Does The Fact That ABC Test for Independent Contractors is Retroactive Mean For a San Diego Business?
The fact the Supreme Court has ruled that the ABC Test for independent contractors is retroactive to April of 2018 should sound alarm bells for any entity with independent contractors in California. The two most common ways for the misclassification of employees as independent contractors is discovered is through an EDD audit or a former worker filing for unemployment.
The first question the EDD is asking in payroll audits is “tell us about these 1099 workers. Can you prove each element of the ABC Test?”
If an independent contractor in your employ is terminated and attempts to file for unemployment it triggers an immediate review by the Labor Board and/or the EDD.
Are you concerned about your company’s potential substantial financial exposure concerning potentially misclassified independent contractors? We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
