The California Supreme Court ruled on Thursday that the state’s ABC test was to be applied retroactively, a decision that many believe would severely impact Uber, Lyft, and other companies and could cause several lawsuits.

In April 2018, the ABC test was issued in a decision called Dynamex. It required that workers must be considered employees unless they fall under three factors. First is if they work free from the control of the hiring entity. The second is if the worker performs work outside the usual court of the hiring entity’s business. And lastly, if the worker has an independent business doing the same type of work.

Retroactive Decision

“Public policy and fairness concerns, such as protecting workers and benefiting businesses that comply with the wage order obligations, favor retroactive application of Dynamex,” Chief Justice Tani Cantil-Sakauye said.

California’s law that codified the ABC test while simultaneously exempting several professions, the AB5 gig-work law, is supported by the Dynamex decision.

Several companies that classified workers as independent contractors instead of employees argued that the flexibility of the model was what supported them. Company officials said it allowed them to save millions of dollars that would have been given as employee benefits, wage, overtime pay, and other expenses.

Last November, gig companies spent about $220 million campaigning to convince voters to pass Proposition 22 that allowed them to consider their workers as independent contractors. The law also exempted the companies from AB5. However, several union groups have worked to overturn the measure this week by filing lawsuits.

Gig companies are not retroactively protected by Proposition 22 and face several lawsuits over employment classification. The companies could be subjected to much more severe penalties if they lose the lawsuit cases under the Supreme Court’s decision. It makes hiring entities responsible for actions they conducted before April 2018, when Dynamex was put in effect.

In May, California’s attorney general and three city attorneys sued Uber and Lyft, while the California labor commissioner sued the two companies in August. Officials argued the ride-hailing companies committed wage theft when they saved funds by misclassifying workers.

“They’re going to be out of luck. For any case that is pending, the test that applies to them will be Dynamex, and it will go back as far as the statute of limitations permits,” said a partner at San Francisco’s Duane Morris. The retroactive process would most likely go back three or four years, depending on what business code is applicable.

Misclassification of Workers

“Despite Uber and Lyft spending record amounts of money to rewrite the law to benefit themselves, they can’t change the fact that they were violating the law for years before Prop. 22 by not classifying their drivers as employees. This decision bolsters the position we’ve maintained throughout,” spokesperson for San Francisco City Attorney Dennis Herrera, John Cote, said.

The Supreme Court’s decision would help California workers who were affected by the wage violations that occurred before April 2018, Boston attorney Shannon Liss-Riordan said. She has filed multiple lawsuits and arbitrations against several companies, including Uber, Lyft, Grubnuc, DoorDash, Postmates, Instacart, Shipt, and Amazon, the San Francisco Chronicle reported.

In an email, Liss-Riordan noted that the court’s decision emphasized the necessity of the test due to the previous standard being much too loose. She argued it had led to inconsistent outcomes that did not properly support workers.

However, senior staff attorney at the National Employment Law Project in Washington, Laura Padin, argued that the decision would severely affect other companies as well. She noted that many industries were rampant with misclassification in places that mostly have people of color performing specific types of work, such as janitorial, home care, and trucking, where workers do not have much bargaining power.