Critical update on the ABC test

On Behalf of | Mar 22, 2021 | employment law

We have discussed the widespread impacts of Assembly Bill 5 in previous blog posts. This law is at the center of many employers’ concerns for the future of their companies.

However, a recent decision regarding AB 5 will also have employers looking into the past.

The ABC test is retroactive

By now, most California employers are very familiar with the ABC test established by the Dynamex decision. Employers must apply the terms of the ABC test to workers to determine whether they qualify as employees or independent contractors.

The decision creating the ABC test was in 2018, but it took until the beginning of 2021 for the California Supreme Court to answer one of the biggest questions employers had: does the test apply retroactively?

In short, the answer is yes. The Court stated that the statute of limitations on employees’ claims still stand. Even so, this recent ruling could increase challenges – and risks – for employers across the state.

What does this mean for employers?

Establishing retroactivity of the ABC test could significantly increase the liability employers could face from former or even current employees.

This means that there are several steps employers must take, including:

  • Auditing their employment records carefully
  • Carefully considering the worker relationships in the past
  • Completing the necessary payroll and employment taxes

It is critical that employers are proactive in determining their employees’ statuses, even if it is retroactive. Taking these steps could make all the difference in helping employers avoid complex labor claims in the future, as well as the severe penalties for violating the law.