California Supreme Court Narrows Application of "Independent Contractor" Status

Today's ruling in Dynamex v. Superior Court (S222732) (April 30, 2018) is an 85-page dissertation, authored by the Chief Justice, for a unanimous court, meant to limit abuse of the independent contractor designation in California. Read the decision here. 

In an era when the United States Supreme Court’s majority increasingly buries its head in the sand and resorts to overly formalistic readings, tilting the scales of justice toward exoneration of unscrupulous businesses, it is refreshing to read Dynamex. The California Supreme Court consistently keeps front and center the unequal bargaining power real California workers experience when going to work. Dynamex helps restore balance, placing the burden where it should be – on businesses, if they hope to show that their workers, or any of them, are independent contractors, not subject to the protection of the Wage Orders that enforce the California Labor Code. Dynamex is a win also for businesses that play fair, because they will not have to compete against others cutting corners on wages, and for the general public, because the Wage Orders and Labor Code are fundamentally designed to protect the health and welfare of everyone in California workplaces. (Slip Op. at 58-60).

In the first pages of Dynamex, the Court notes a U.S. Department of Labor report finding that the distinction between independent contractors and employees is the most important factor in determining whether a worker will receive labor, employment, and other statutory protections. Employers hold back billions of dollars a year in taxes based upon improper independent contractor designations, and millions of workers suffer the consequences. (Slip Op. at 2). 

The workers in Dynamex argued that the same tests determine whether supposed independent contractors are actually employees entitled to Wage Order protections, as would determine whether two entities are joint employers - namely, the tests in Martinez v. Combs (2010) 49 Cal.4th 35, 64: whether an alleged employer has a) control over wages, hours and working conditions, or; b) suffers or permits work to occur; or c) engages a worker to perform work. Dynamex upheld the Court of Appeal decision, holding that the trial court did not err in concluding that the "suffer or permit to work" definition of "employ" contained in the Wage Orders may be relied upon in evaluating whether a worker is an employee. (Slip Op. at 46-47). The company had argued that courts could only use the old independent contractor test from S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello), but the Court of Appeal and Supreme Court rejected this view. (Slip Op. at 6-7, 46).

Instead, the Court held that, in evaluating the “suffer or permit” test under Martinez, for the purpose of determining independent contractor versus employee status, courts should apply the “ABC test.” Though, as of today, I find no state cases prior to Dynamex in California that invoked the ABC test, I predict there will be hundreds of “ABC test” decisions in the months and years to come.

 “Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (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 for the hiring entity.” (Slip Op. at 7). The Court repeatedly emphasized that the it is an alleged employer’s burden to prove independent contractor status, and that doing so requires meeting all three prongs of the ABC test. (Slip Op. at 64, 66-68).

The Court recommended that, if deciding B or C is easier than A (as will usually be the case), then a court should begin by deciding B or C – since all three prongs must be met. (Slip Op. at 76). In other words, if a delivery driver without an independent delivery business is being classified as an independent contractor by a delivery company – a court likely need go no further, because the company will have failed prongs B and C.

More analysis of Dynamex to come...

If you believe you are misclassified as an independent contractor and should be paid as an employee, contact Bryan Schwartz Law.

Sixth Circuit Extends Title VII Protection to Transgender Employees

Joining the Second and Seventh Circuits, the Sixth Circuit issued a decision last month that extended Title VII protection for individuals who are transgender or transitioning in EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., 884 F.3d 560 (6th Cir. 2018). 

The case involves Aimee Stephens, who had worked for nearly six years as a funeral director at R.G. and G.R. Harris Funeral Homes ("Funeral Home") when she informed the funeral home's owner that she is a transgender woman and intended to start dressing in appropriate business attire for women as part of her transition. The owner of the funeral home fired Stephens because of Aimee's transgender status, claiming that he would violate God's commands if he permitted funeral directors to deny their sex while representing the funeral home and would render him complicit "in supporting the idea that sex is a changeable social construct rather than an immutable God-given gift."

After her termination, Stephens filed a charge of discrimination with the EEOC. The EEOC determined that there was reasonable cause to believe that the Funeral Home fired Stephens due to her sex and gender identity. The EEOC also found the Funeral Home to be in violation of Title VII because it provided male employees with a clothing benefit which was denied to females. After the EEOC's informal conciliation process failed, the EEOC filed a complaint in federal court against the Funeral Home on September 25, 2014.

After the parties cross-moved for summary judgment, the District Court determined that there was direct evidence to support Stephen's claim of employment discrimination on the basis of her sex. However, the Court nevertheless found in the Funeral Home's favor, concluding that the Religious Freedom Restoration Act (“RFRA”) precludes the EEOC from enforcing Title VII against the Funeral Home, as doing so would substantially burden the Funeral Home's religious exercise, and the EEOC had failed to demonstrate that enforcing Title VII was the least restrictive way to achieve its presumably compelling interest “in ensuring that Stephens is not subject to gender stereotypes in the workplace in terms of required clothing at the Funeral home.”

The EEOC timely appealed, and Stephens moved to intervene in this appeal on January 26, 2017, after expressing concern that changes in policy priorities within the U.S. government might prevent the EEOC from fully representing Stephen's interests in the case. Stephen's request was granted by the Sixth Circuit on March 27, 2017. 

On appeal, the Sixth Circuit overturned the district court, finding that Stephens was protected by Title VII because the Funeral Home's decision to fire Stephens necessarily implicated Title VII's proscriptions against sex stereotyping, which is already protected under the court’s precedent in Smith v. City of Salem, 378 F.3d 566, 573 (6th Cir. 2004) and Supreme Court precedent from Price Waterhouse v. Hopkins, 490 U.S. 228 (1989). As to the employer’s free exercise of religion defense, the Sixth Circuit reversed the district court’s decision, holding that forcing the funeral home to comply with Title VII did not meet the RFRA’s substantial burden requirement, in part because the funeral home could not rely on the presumed gender biases of its customers to establish a substantial burden on its free exercise of religion. The ruling affirms that transgender individuals are protected by federal sex discrimination laws, and that religious belief does not give employers the right to discriminate against them.

The Late, Great Judge Reinhardt’s Legacy: Employers can no Longer Consider Prior Salary History in Setting Workers’ Wages

Stephen Reinhardt, known as the “liberal lion” of the Ninth Circuit Court of Appeals since his appointment by President Jimmy Carter in 1980, died last month, after authoring one last decision for the ages.

Yesterday, the Ninth Circuit published posthumously Judge Reinhardt’s final opinion, to combat the gender wage gap, by holding “that prior salary alone or in combination with other factors cannot justify a wage differential.” Rizo v. Yovino, No. 16-15372, Slip Op. at 5 (9th Cir. Apr. 9, 2018), available here. Bryan Schwartz Law previously blogged about the Ninth Circuit’s earlier decision in Rizo here.

            Despite decades of education, litigation, and mobilization to make the promise of equal work for equal pay a reality, the gender wage gap continues to disadvantage millions of women in our country, who earn only 79% of what men earn.[1] Women lose $33 billion per year due to the wage gap.[2] Judge Reinhardt’s words in Rizo will  now be the fulcrum of the national discussion over this stubborn, glaring problem.

In Rizo, the facts are undisputed: a county school district paid a female math consultant less than comparable male workers for the same work. Slip Op. at 6. All things being equal, the county’s decision would be a textbook violation of the federal Equal Pay Act. But, the county attempted to justify its decision by reference to a statutory catch-all exception to the federal Equal Pay Act, which allows for wage differences between male and female employees based on a “factor other than sex.” In particular, the county argued that the female employee’s prior salary history was a factor not rooted in sex, and thus could justify paying the female employee less than comparable male employees for the same work. Id. at 7. The initial three-judge Ninth Circuit panel agreed, citing its past decision in Kouba v. Allstate Ins. Co., 691 F.3d 873, 878 (9th Cir. 1982), in which the court declined to create a strict prohibition against the use of prior salary.

Undeterred, the advocates for pay equality petitioned for the Ninth Circuit to re-hear the case en banc,[3] which the court granted. After a second hearing, the en banc Ninth Circuit court rejected the county’s argument because an employer’s decision to rely on an applicant’s prior salary history to set that applicant’s present salary inevitably imports and thereby perpetuates unlawful disparities in pay from the applicant’s prior position. Id. at 28 (“Prior salary is not job related and it perpetuates the very gender-based assumptions about the value of work that the Equal Pay Act was designed to end. This is true whether prior salary is the sole factor or one of several factors considered in establishing employees’ wages.”).[4] This runs counter to the purpose of the Equal Pay Act, which was enacted to “to put an end to the ‘serious and endemic problem of employment discrimination in private industry’ and to carry out a broad mandate of equal pay for equal work regardless of sex.” Id. at 10 (quoting Corning Glass Works v. Brennan, 417 U.S. 188, 195 (1974)).[5]

Notably, in holding that employers “may not use sex directly or indirectly as a basis for establishing employees’ wages,” including using employees’ salary histories to set wages, the Ninth Circuit overruled its prior decision in Kouba. Id. at 23. This outcome not only paves the way for more effective enforcement of the Equal Pay Act’s mandate – equal pay for equal work, not equal salary histories – but also serves as a reminder that equity can sometimes only be achieved through fearless, persistent advocacy, and jurists like Stephen Reinhardt, who demonstrate the courage to pursue justice.

Bryan Schwartz Law congratulates Jennifer Reisch and Jessica Stender at Equal Rights Advocates, our co-counsel in a prior sex discrimination case, and Mariko Yoshihara of the California Employment Lawyers Association, along with the many other advocates for wage equality who brought about this momentous victory!

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[1] See https://www.equalrights.org/fairpay/

[2] Id.

[3] Most cases reviewed by a federal appellate circuit court are heard by fewer than the full number of judges sitting on a particular circuit court, usually a three-judge panel. However, parties may request that all judges sitting on a given federal circuit court, like the Ninth Circuit, re-hear their case because one or more parties believes the three-judge panel ruled incorrectly.

[4] The en banc court emphasized that the “factor other than sex” exception must be “limited to job-related factors,” not business reasons such as whether an employer could get away with paying a female worker less than male workers because the female worker was paid less at her previous job. Id. at 25 (“[U]sing the word “business” risks conflating a legitimate factor other than sex with any cost-saving mechanism. The Supreme Court and Congress have repeatedly rejected such an interpretation of the fourth exception.”).

[5] The en banc court also supported its decision with the plain text of the statute, and the legislative history of the Equal Pay Act, including specific debates relating to the catch-all exception at issue in Rizo.

Revisiting Evidentiary Standards in Gender Discrimination Class Actions

On Monday April 2, 2018, the U.S. District Court, Southern District of New York, excluded arbitrary expert testimony and accepted generalized proof of statistical evidence to grant, in part, Plaintiffs’ class certification motion in Chen-Oster, et al. v. Goldman Sachs, 2018 WL 1609267, at *1 (S.D.N.Y. Mar. 30, 2018).

The Class, consisting of approximately 2,300 female current and former Associates and Vice Presidents in the Investment Banking, Investment Management, and Securities Divisions of Goldman Sachs, are challenging the company’s practices of paying women less, giving them worse reviews, and passing them over for promotion. Specifically, Plaintiffs allege that Goldman’s “360 review” performance evaluation process, “forced ranking,” and “cross ruffing” (i.e., cross-checking procedure that involves teams of Goldman partners interviewing each other about potential candidates) are policies and practices that inherently discriminate against women, particularly when those policies and practices are exercised within a “boy’s club” culture, where for example, managers/decision-makers exclude women from events such as barbeques, drinks, and golf outings, hire scantily dressed female escorts to attend holiday parties, etc.

The Court first addressed Goldman Sachs’ attempt to use “experts” in the financial industry to explain custom and practice for evaluation and promotion; however, the Court rejected Goldman’s expert. In United States v. Dukagjini, 326 F.3d 45, 54 (2d Cir. 2003), the Second Circuit, interpreting the Daubert expert-certification approach and applying Rule 702, held that expert testimony should be excluded if the witness is not actually applying expert methodology. The Honorable Judge Analisa Torres, writing in Chen-Oster for the District Court, stated “[u]nder Daubert, the Court must exercise its gatekeeping function accordingly, and ‘exclude unreliable expert testimony and junk science from the courtroom.’” Chen-Oster, 2018 WL 1609267, at *8 (citing, inter alia, Almeciga v. Ctr. for Investigative Reporting, Inc., 185 F. Supp. 3d 401, 415 (S.D.N.Y. 2016)). Judge Torres went on to state, “[g]eneral knowledge about the financial services industry (or, indeed, uninformed speculation about Goldman Sachs) could hardly be relevant or reliable on the question of whether a statistician’s methodology is sound or supported.” Chen-Oster, 2018 WL 1609267, at *8. Judge Torres specifically cited SEC v. Tourre, 950 F. Supp. 2d 666, 677–78 (S.D.N.Y. 2013), in which the Court had excluded testimony because the expert’s knowledge and expertise was in “so broad a category as to become meaningless when particularized” to the issues of the case. Judge Torres, was emphatic: “Defendants cannot circumvent the requirements of Rule 702 and Daubert by labeling a statistical expert’s statistical exercises a ‘real world check.’ A wolf in sheep’s clothing is still a wolf.” Chen-Oster, 2018 WL 1609267, at *8.

The Court also, recognizing the realities of large class actions, allowed Plaintiffs to use “generalized proof” of statistical evidence to show causation prima facie that Goldman Sachs’ policies and practices have a disparate impact on women. Relying on Dukes v. Walmart, Goldman Sachs attempted to argue that individual managers applied Goldman’s practices in “highly individualized ways,” such that Plaintiffs could not show that Defendants used a “common mode of exercising discretion.” Id. at *12. But the Court “decline[d] to indulge in Defendants’ semantic somersaults.” Id. Hitting at the root, the District Court made clear that in Dukes the plaintiffs lost because they had not identified a “common job evaluation procedure.” Here, Plaintiffs did. Id.

Defendants also, relying on a disaggregated business unit argument, contended that gender disparities were the result of “anomalies specific to individual Business Units.” Id. at *14. However, the Court rejected this argument, reasoning that “business units” at Goldman Sachs were not fixed. Id. For years, Goldman had transferred business units to different divisions, and moreover, the personnel in those units regularly transferred to other units and/or divisions. Id. Ultimately, the Court found the Class expert’s cross-unit modelling of the correlation between the performance/promotion process and gender to be persuasive, as it controlled for, among other things, division, year, office, education, and experience. Id. at *15. The expert’s report thereby provided significant proof of commonality for the purposes of showing the disparate impact of Goldman Sachs’ practices on women.

The Court also certified the disparate treatment claim, but not based on the Goldman Sachs “boy’s club” culture. Interestingly, the Court applied a “statistics and anecdotal evidence” approach in which it considered internal complaints, external complaints, survey answers, emails, articles, business records, and declarations from class members to ground its disparate treatment analysis. While Courts may not be recognizing the “boy’s club” phenomenon as evidence in and of itself, they are putting the pieces together to show that misogynist attitudes and practices continue to pervade certain workforces and injure women’s careers.

Although Dukes still presents challenges, the Chen-Oster analysis is a boon to class certification in discrimination cases.

If you have experienced discrimination based upon your gender, and need help, contact Bryan Schwartz Law.