Is Dynamex retroactive? What will the California Supreme Court say?

Since Gov. Gavin Newsom signed Assembly Bill 5 by Assemblymember Lorena Gonzalez (D-San Diego) on Sept. 18, many Capitol observers have asked the logical question: Is the Dynamex decision applied retroactively? Moreover, the 9th U.S. Circuit Court of Appeals recently certified a question to the California Supreme Court regarding whether its decision in the Dynamex case should be applied retroactively.

From our perspective, there are a couple responses that could come from the California Supreme Court on this certification question from the federal appellate court:

(1) Simply answer that the court's decision in Dynamex is to be applied retroactively, which is the standard answer if the court were not to explicitly state that its decision is to be applied prospectively; or

(2) That the Legislature determined the answer to the question by specifying effective dates in the enactment of AB 5.

If the Supreme Court responds by pointing to the language of AB 5, we need to determine that the statutory language of AB 5 actually says. AB 5 provides that Subdivision (a) of Labor Code Section 2750.3 (which is added to the code by the enactment of AB 5) "does not constitute a change in, but is declaratory of, existing law with regard to wage orders of the Industrial Welfare Commission and violations of the Labor Code relating to wage orders." Labor Code Section 2750.3(i)(1).

California courts generally view this type of explicit legislative intent language as providing retroactive application to the change in law that was adopted by the bill. As a result, for the Labor Code provisions that relate to the IWC's Wage Orders (e.g., meal breaks and rest periods, overtime), AB 5 specifies that the "ABC test" is to be applied retroactively (of course, there is a general four-year statute of limitations to such claims). Hence, the Legislature "clarified" the issue of retroactivity for these types of legal claims.

In addition, the new subdivisions (b), (c), (d), (e), (f), (g) and (h) of Labor Code Section 2750.3 are specified to apply retroactively to existing claims and actions "to the maximum extent permitted by law." Labor Code Section 2750.3(i)(2). These subdivisions provide the 37 different "exemptions" for specified professions and service providers who will continue to be covered by the Supreme Court's former decision in Borello which uses a multi-factor test to address claims of worker misclassification.

In other words, if an industry was lucky enough to get a carve-out from the ABC test in AB 5, then that industry carve-out is retroactive in application so that these professions and service providers are not and never were subject to the ABC test. Therefore, the Supreme Court could specify that, under AB 5 and for the specified exemptions from the ABC test, these exemptions from its Dynamex decision apply retroactively to relieve employers from liability.

On the other hand, the provisions of this new Labor Code section added by the enactment of AB 5 generally apply to work performed on or after Jan. 1, 2020. Labor Code Section 2750.3(i)(3). So, what does this language actually mean? While the ABC test applies retroactively to claims related to the Wage Order provisions of the Labor Code, what about for Labor Code provisions that are not explicitly covered by the Wage Orders?

Based upon the language found in AB 5, the ABC test appears to apply prospectively (i.e., Jan. 1, 2020) to claims related to the non-Wage Order provisions of the Labor Code, as well as the Unemployment Insurance Code. AB 5 also amended Unemployment Insurance Code Section 621 which provides a definition of "employee" for UI purposes.

This change in the statute does not contain a statement regarding retroactivity. Because the change in the UI Code takes effect on Jan. 1, 2020 under AB 5, we assume, but it remains to be seen, that the ABC test will apply prospectively for unemployment insurance purposes.

In addition, the ABC test applies prospectively (i.e., July 1, 2020) for claims related to workers' compensation claims. AB 5 amended Labor Code Section 3351, which provides the definition of "employee" for purposes of workers' compensation. The new law specifies that "employee" for workers' compensation purposes is defined as those individuals who are employees pursuant to Labor Code Section 2750.3 "beginning July 1, 2020" and that this subdivision "shall not apply retroactivity." As a result, although AB 5 is expanding the Dynamex decision for purposes of the workers' compensation statute, the Legislature is only doing so prospectively.

In the end, we will have to wait and see what the California Supreme Court decides when it answers the 9th Circuit's certified question. When the Legislature reconvenes for the second year of its Session on Jan. 6, 2020, we will also see whether additional professions and service providers are added to the list of "exemptions" and whether their additions to the Labor Code will be done so with retroactive effect. 