Still Don’t Know Our ABCs

By: By Mark Webb
Mark Webb
Mark Webb

The week of January 11 was a busy one for the Courts when it came to the ongoing trauma that is AB 5 and the vexatious “ABC Test” now codified in Labor Code §§ 2775 – 2787.

The first is the long-awaited decision from the California Supreme Court in Gerado Vazquez et al., v. Jan-Pro Franchising International, Inc., addressing the question from the United States Court of Appeals for the Ninth Circuit of whether the Supreme Court’s decision in Dynamex Operations W. Inc. v. Superior Court (2018) 4 Cal.5th 903 applies retroactively. The Supreme Court answered on January 14 that yes indeed it applied retroactively, “to all nonfinal cases that predate the effective date of the Dynamex decision.”

The effective date of the Dynamex decision was April 30, 2018.

We all know, and painfully, that the California Legislature seized upon the opportunity to apply the Dynamex standard to more than wage and hour disputes. This incorporation of the ABC Test into unemployment insurance and workers’ compensation began with Assembly Bill 5 (Gonzalez), chaptered and effective January 1, 2020. AB 5 had with it a host of fairly incomprehensible requirements to get out from under the unintended consequences of applying the Dynamex decision to more situations than the Supreme Court contemplated when it defined the term “suffer or permit to work” for purposes of Wage Orders of the Industrial Accident Commission.

More supplicants were granted dispensation when Assembly Bill 2257 (Gonzalez) was chaptered last year. That was of little solace for franchisors, who late last year filed suit in International Franchise Association v. State of California, seeking to enjoin the application of AB 2257 and its predecessors against franchises. On January 14, the same day as the Dynamex retroactivity decision, the State of California filed a motion to dismiss the complaint from the Franchise Association and its co-plaintiffs.

So, what, exactly, is the import of the Supreme Court’s decision? Well, outside the Vazquez case possibly not much. As noted by the Court of Appeal in 2019 in the case of Gonzalez v. San Gabriel Transit, Inc., “In any event, there is no reason to conclude that Dynamex departs from the usual rule of retroactive application.  Judicial decisions in civil litigation almost uniformly are given retroactive effect and applied to pending litigation.”

For cases that commenced prior to April 30, 2018, there are issues. This includes potential liability for lawsuits against digital platforms [i.e. UBER, Lyft and DoorDash] pending when Proposition 22 was passed by the voters in November.

For point of reference, Vazquez began in 2008. That alone should be a sobering message to policymakers. But, somehow, it is not.

In the COVID-19 dominated 2021 California legislative session, it is too early to tell whether there will be yet another round of adjustments to the ABC Test. It is also too early to tell how the Biden Administration and Congress will address these issues on a national level, although it is fair to note both President Biden and Congress have expressed support for extending the ABC Test for all labor, employment, and tax laws. With that comes a complicating factor of whether federal action will call into question the multitude of ABC Test exemptions currently in California’s Labor Code.

For now, organized and well-funded business groups such as franchisors and the trucking industry are challenging the ABC Test in the Courts. Their success will have little impact for the thousands of entrepreneurs whose independence is a matter of choice, not the result of coercion. p


Note: The opinions expressed herein may or may not be those of Workers’ Comp Executive. Mark Webb is a former Arizona insurance regulator, insurance company chief compliance officer, and is an expert in corporate governance, risk and compliance. He is the owner of Prop 23 Advisors.