California Supreme Court Expands Number of Workers Classified as Employees Rather Than Independent Contractors

The 2020 presidential election successfully ousted an administration and political movement that has sought to undermine workplace protections, and reaffirmed democracy and the rule of law.

But it also saw the overwhelming passage of Proposition 22 in California after gig employers spent a jaw-dropping $200,000,000+

(the most in California history) to write its own law, much to the dismay of worker advocates and to the detriment of gig economy workers. Proposition 22 exempts app-based rideshare and delivery com
panies from their responsibilities under landmark worker protection law A.B. 5 and the Supreme Court of California’s decision in Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, which classify drivers as employees.

Good news for workers came early in 2021: the California Supreme Court has determined that the Dynamex decision applies retroactively to cases that arose before Dynamex was decided in 2018. The decision is Vazquez v. Jan-Pro Financing International, Inc.

Dynamex established the “ABC test,” a three-part legal test that makes it more difficult for businesses to ignore worker protections by classifying them as independent contractors. Under the ABC Test, a business can classify a worker as an independent contractor only if the employer can show all three parts:

A)      The person is free from the control and direction of the hiring entity in connection with the performance of the work;

B)      The person performs work that is outside the usual course of the hiring entity’s business; and

C)      The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If the business cannot prove all three of these parts, the worker is an employee. Unlike independent contractors, employees are guaranteed protections like sick leave, minimum wage, overtime pay, reimbursement for their expenses, health insurance, and the right to organize. Gig employers such as Uber, Lyft, Doordash, and Postmates hoped to avoid these legal obligations  to their workers by bankrolling Proposition 22—which is why its passage was such a stinging defeat for gig workers.

A three-judge panel of the Ninth Circuit Court of Appeals had already held that the ABC test applies retroactively in May 2019, but that did not end the debate. On rehearing, the Ninth Circuit decided to ask the California Supreme Court what it thought and withdrew its opinion. In a victory for workers, the California Supreme Court unanimously held on January 14, 2021, that the Dynamex decision should apply retroactively to cases arising before it was decided.

Judicial decisions like Dynamex usually apply retroactively, but the defendant here argued that Dynamex should be an exception because the ABC test was, in their view, a new rule. As such, according to the defendant, it would not be fair to apply Dynamex retroactively. The court disagreed, opining that decisions prior to Dynamex had put hiring entities on notice that the previous state of the law regarding independent contractor status was not firmly settled. To the contrary, the court stated that “fairness and policy considerations underlying our decision in Dynamex favor retroactive application,” because workers’ protections enable “them to provide at least minimally for themselves and their families and to accord them a modicum of dignity and self-respect.” If Dynamex were not applied retroactively, the court feared that many workers would be denied the intended protections of California law.

Though this is a victory, it is a limited one. Statutes of limitations already restrict the number of workers who may assert their rights as employees improperly misclassified as independent contractors. However, Proposition 22 does not apply retroactively, meaning that gig workers have a window in which to exercise their legal rights in light of this decision.

If you have wrongly classified as an independent contractor instead of an employee, contact Bryan Schwartz Law.

Ashley Judd’s Sexual Harassment Case Against Harvey Weinstein Can Go Forward

Earlier this week, the Ninth Circuit Court of Appeals reversed the district court dismissal of actor Ashley Judd’s sexual harassment claim against former Hollywood producer Harvey Weinstein. The Ninth Circuit opinion allows Judd’s sexual harassment claim to go forward. This decision illustrates how sexual harassment claims are not limited to standard employer/employee or service provider/client relationships.

Judd alleges that she was sexually harassed by Weinstein in 1996 or 1997, when she was starting her acting career and Weinstein was a powerful producer. Judd says Weinstein harassed her during a meeting intended to discuss potential acting opportunities. After she rejected his advances, Judd claims Weinstein prevented her from being cast in movies he produced. Notably, Judd alleges that Weinstein blocked her casting in The Lord of the Rings adaptations in retaliation. In fact, the reason Judd can bring her suit so many years after the usual statute of limitations has passed is because she says did not discover that Weinstein had been retaliating against her until Peter Jackson, who directed, produced, and wrote The Lord of the Rings films, gave an interview in 2017 about Weinstein’s actions against Judd. See Judd v. Weinstein, No. CV 18-5724 PSG (FFMx), 2018 WL 7448914, at *3-5 (C.D. Cal. Sept. 19, 2018). Judd was able to use California’s “discovery rule,” which is an exception to the general rules regarding statutes of limitation. Under the discovery rule, the statute of limitation begins to run not when the injury occurs, but instead when the plaintiff discovers or has reason to discover the cause of action. See No. CV 18-5724 PSG (FFMx), 2018 WL 7448914, at *4.

 

Among other claims, Judd sued Weinstein in April 2018 for sexual harassment in a professional relationship under California Civil Code Section 51.9. While allowing her other claims to go forward, the United States District Court of the Central District of California dismissed Judd’s sexual harassment claim because it believed Judd and Weinstein did not have the requisite type of professional relationship described in section 51.9.

 

Section 51.9 is part of California’s Unruh Civil Rights Act, which prohibits business discrimination on the basis of sex, race, religion, disability, sexual orientation, and other characteristics. Section 51.9 specifically prohibits sexual harassment in a variety of business relationships outside the workplace. Over the years, section 51.9 has been amended to specifically cover producer/actor relationships. However, because the alleged harassment occurred in 1996 or 1997, the court clarifies that it must use the 1996 version of section 51.9.

 

In 1996, as the Ninth Circuit explains, the law required the plaintiff to have a certain type of business, service, or professional relationship with the defendant. The 1996 statute listed examples of the types of professional relationships covered by the law, including those between plaintiffs and physicians, attorneys, social workers, accountants, teachers, real estate agents, landlords, and other specific professions. The statute also covered relationships, “substantially similar to any of the above.” Because the relationship between an actor and a producer was not specifically enumerated in the statute, Judd argued that her professional relationship with Weinstein was substantially similar to those listed. The district court disagreed, holding that the defining characteristic of the enumerated relationships was that they were all between service providers and clients. See No. CV 18-5724 PSG (FFMx), 2018 WL 7448914, at *9. Because Weinstein and Judd did not have a service provider/client relationship, the district court dismissed her claim.

 

Fortunately, the Ninth Circuit agreed with Judd. The Ninth Circuit’s reversal of the district court opinion states that the key element in the enumerated relationships is that, “an inherent power imbalance exists such that, by virtue of his or her ‘business, service, or professional’ position, one party is uniquely situated to exercise coercion or leverage over the other.” Because Judd was an actor at the beginning of her career and Weinstein was an established and powerful Hollywood producer, their relationship may have been defined by an inherent power imbalance. Under the Ninth Circuit’s interpretation of section 51.9, Judd and Weinstein’s professional relationship is potentially covered by the statute and she may pursue her sexual harassment claim. The case has been remanded to the district court.

 

Section 51.9 looks different now than it did in 1996. The statute was amended in 2018 and now explicitly covers sexual harassment by directors, producers, elected officials, and lobbyists, in addition to all of the professions previously specified.

 

In this week’s decision, the Ninth Circuit recognized the importance of protecting people from sexual harassment in a wide variety of contexts. The Unruh Civil Rights Act and section 51.9 are important tools in the fight against injustice.

 

Bryan Schwartz Law has written about sexual harassment, gender discrimination, and retaliation many times before. If you believe you were sexually harassed, discriminated against, or retaliated against, please contact Bryan Schwartz Law.

Most Disabled California Workers Should File State, Rather than Federal, Employment Discrimination Claims, after Anthony v. TRAX

The Ninth Circuit Court of Appeals issued a disappointing ruling interpreting the Americans with Disabilities Act (“ADA”) earlier this month. The case is Anthony v. TRAX International Corp. According to that ruling, an employee cannot pursue remedies under the ADA if their employer discovers after its discrimination that the employee lacked the prerequisite qualifications to perform the job. Even though the employer lacks this “after-acquired evidence” at the time it discriminates against the employee—even though the employer actually discriminated against the employee—such evidence can preclude recovery under the ADA, under this precedent. As discussed below, in the wake of this decision, plaintiff-side attorneys should consider bringing disability discrimination actions under California law instead of the ADA, and must investigate the qualifications issue in any case with ADA claims.

The employee in the case, Sunny Anthony, suffered from PTSD and related anxiety and depression. When her condition worsened, she was forced to miss significant time at work. Afterwards, her employer, TRAX, a government contractor with the Department of the Army, warned her that she would be fired if she did not submit a doctor’s note saying that she could return to work without restrictions, even though policies requiring employees to be 100% healthy do not comply with the ADA. When she failed to provide such a note, TRAX fired her. Ms. Anthony would have been eligible for rehire at administrative positions that were open at the time of her termination, but TRAX did not consider transferring or reassigning her, or any other measure, as an accommodation.

Ms. Anthony sued TRAX for disability discrimination and failure to engage in the interactive process regarding disability accommodations under the ADA. During the lawsuit, TRAX learned that Ms. Anthony did not have a bachelor’s degree, a requirement for all workers at Ms. Anthony’s position under TRAX’s contract with the Department of the Army. On this basis, TRAX successfully moved to have the case dismissed.

The Ninth Circuit affirmed the ruling in TRAX’s favor, holding that Ms. Anthony was not “qualified” under the ADA. See 42 U.S.C. § 12112(a). The court relied on EEOC regulation 29 C.F.R. § 1630.2(m) interpreting the ADA to analyze Ms. Anthony’s qualifications. To determine whether an individual is qualified pursuant to this ADA regulation, a court examines whether the individual has the qualifications necessary to perform the position (such as educational or experiential background) and whether the individual could perform the essential duties of the job with or without accommodations.

TRAX did not know about Ms. Anthony’s lack of a bachelor’s degree when it discriminatorily fired her. But despite TRAX’s wrongdoing, the Ninth Circuit held that Ms. Anthony’s lack of a bachelor’s degree completely barred her ADA claim. Because of 29 C.F.R. § 1630.2(m), according to the court, the question of an ADA plaintiff’s qualification is always pertinent, even if it has nothing to do with the alleged wrongdoing. The court suggested that the EEOC could amend this regulation in order to achieve a different result, though amending regulations is no easy task under any administration, and amending regulations to favor employees is even less likely under the current administration.

Ms. Anthony invoked the U.S. Supreme Court decision in McKennon v. Nashville Banner Publishing Co., 513 U.S. 352 (1995), an age discrimination case, to support her argument that the evidence of her lack of a bachelor’s degree acquired after her termination did not disqualify her from bringing her ADA claim. Bryan Schwartz Law has written about this case and the after-acquired evidence doctrine here, here, and here. McKennon held that, at most, such after-acquired evidence cuts off liability after the employer learns of a legitimate reason for termination. Ms. Anthony argued the same logic was at play in her ADA case.

In disagreeing, the Ninth Circuit argued that the Age Discrimination in Employment Act lacked a “qualified individual” requirement, unlike the ADA. It held that after-acquired evidence can show that a plaintiff is not qualified in an ADA case, even though such evidence cannot be used to support an employer’s purportedly neutral non-discriminatory basis for terminating an employee. The court noted, “An employer’s ignorance cannot create a qualification when there is none.”

Although the Anthony decision represents a setback for disabled employees seeking to enforce their ADA rights, the decision specifically applies to cases brought under the federal ADA, where 29 C.F.R. § 1630.2(m) is in effect, and not California’s Fair Employment and Housing Act (“FEHA”). After-acquired evidence does not provide a complete defense to a FEHA claim, thanks to the California Supreme Court decision in Salas v. Sierra Chemical Co., which followed McKennon and held that due to FEHA’s strong antidiscrimination purpose, “the doctrine[] of after-acquired evidence… [is] not complete defense[] to a worker’s claims under California's FEHA….” Instead, wronged employees are entitled to compensation from the date of the adverse action to the date the employer acquired information about the employee’s ineligibility for work. See Horne v. Dist. Council 16 Int’l Union of Painters & Allied Trades, (2015) 234 Cal. App. 4th 524, 540 (“Salas makes clear that after-acquired evidence is only relevant in the damages phase of a FEHA proceeding.”) Bryan Schwartz Law has written about Salas here.

Because after-acquired evidence cannot disqualify a disabled employee from recovery under FEHA pursuant to current law, practitioners should consider filing under FEHA rather than the ADA if possible. If the ADA is the only option, practitioners considering new cases should investigate the job requirements and the employee’s actual qualifications, without assuming that the fact of employment, no matter how long or exemplary, indicates that the employee was qualified. It is also important to note that Anthony hinged on an interpretation of a regulation specific to the ADA and distinguished McKennon on that ground; other federal discrimination statutes without an analogous regulation are unaffected. Furthermore, Anthony does not allow employers to retroactively come up with job requirements that did not exist at the time the employee was terminated, because a plaintiff must demonstrate that they were “qualified at the time of the adverse employment action, rather than at some earlier or later time.” Anthony Slip Op. at 11.

In addition, the Anthony court did not bolster the “unclean hands” doctrine, another legal defense based on misconduct by the employee. This defense is based on the questionable theory that a defendant should not have to pay for its wrongdoing when the accuser is just as guilty of wrongdoing. “Unclean hands” can constitute a complete defense, but it is unavailable “where a private suit serves important public purposes,” such as to enforce anti-discrimination statutes like the ADA. McKennon, 513 U.S. at 360-361.

If you believe your employer has discriminated against you based on your disability, contact Bryan Schwartz Law. 

Blowing the Whistle—When Can You Go to Court about Retaliation?

Whistleblowers—employees who sound the alarm on their employer’s or coworkers’ illegal activity—are vital to protect the public from corporate and government wrongdoing. But there are understandable reasons that employees choose not to speak out, including fear of retaliation. Whistleblower protection laws are designed to prohibit retaliation and encourage whistleblowing.

California’s whistleblower protection laws are some of the nation’s most expansive. A central component of California’s whistleblower protection scheme is Section 1102.5 of the California Labor Code, which, among other protections, prevents employers from retaliating against employees who make complain internally, make whistleblowing reports to government agencies, or participate in government investigations. Section 1102.5 aims to encourage employees to speak out against wrongdoing. The 2003 amendments also codified the California appellate court decision in Gardenhire v. City of Los Angeles Housing Authority (2000) 85 Cal.App.4th 236, to clarify that a government employee’s report to the agency where they work constitutes whistleblowing activity.

But when do government whistleblowers get to enforce their rights in court? Sometimes, government employees who are subject to retaliatory acts—such as termination, demotion, official discipline, etc.—file administrative complaints. Such a complaint can involve a hearing, presentation of evidence, and legal representation, among other formal aspects. Sometimes, the administrative process will eliminate an individual’s right to proceed in court altogether. If an administrative decision lacks the “requisite judicial character” to constitute a full resolution of the legal issue, a court may step in. Sometimes an administrative decision will not be considered a final decision if that would go against the legislature’s intent, given that the legislature created the administrative body in the first place.   

The Ninth Circuit Court of Appeals recently considered the legislative intent exception as it applies to public sector employees alleging whistleblower retaliation in Bahra v. County of San Bernardino. The plaintiff, Eric Bahra, was employed by San Bernardino County’s Department of Children and Family Services, which investigates referrals regarding child abuse, among other duties. While investigating allegations of abuse against a foster parent, Bahra discovered that the foster parent had a prior history of child abuse and neglect, but this history was not reflected in the agency’s database due to errors in previous entries.

He told his manager. Later that day, he witnessed his manager and another agency employee looking through the files on his desk. Next, the agency initiated an investigation into Bahra, assigned him to desk duty, then placed him on administrative leave. Eventually, the agency provided Bahra with a notice of proposed dismissal. He contested it in an initial administrative hearing in 2013, but the hearing officer ruled for the County and the agency dismissed Bahra. He appealed and requested a full evidentiary hearing at the County’s Civil Service Commission. After a 14-day hearing and testimony from 27 witnesses in 2014, the Commission’s hearing officer, in 2015, rejected Bahra’s retaliation claims, and the Commission adopted the hearing officer’s report. Although he was informed that he could seek a writ of mandamus pursuant to California Code of Civil Procedure 1094.5, he elected not to do so. Instead, he filed a civil suit in the United States District Court, bringing claims under Section 1102.5 and 42 U.S.C. § 1983. The District Court dismissed the complaint in 2018 on grounds of issue preclusion and claim preclusion, meaning, that because the matter had been fully adjudicated administratively, it could not be brought in court.

On December 30, 2019, the Ninth Circuit reversed as to Bahra’s Section 1102.5 claim. The court analyzed two state court decisions: Taswell v. Regents of University of California 23 Cal.App.5th 343 (2018), in which the California Court of Appeals held that administrative findings by a state agency do not preclude retaliation claims brought under Section 1102.5; and, Murray v. Alaska Airlines 50 Cal.4th 860 (2010), where the California Supreme Court held that a federal employee’s retaliation claim was precluded. The agency argued that Murray indicated that the California Supreme Court would disagree with Taswell.

The Ninth Circuit rejected this argument. First, the court stated that Murray was highly specific to the factual and legal circumstances of the case. It did not purport to apply to all administrative decisions, especially in light of federalism issues at play in Murray but absent in Bahra. Second, Murray analyzed the first exception—the “sufficiently judicial character” exception—and not the legislative intent exception. Third, the Ninth circuit looked to California Supreme Court precedent more recent than Murray, including decisions on which Taswell relied, which suggested that the California Supreme Court would agree with Taswell. Accordingly, the Ninth Circuit ruled that the Department of Child and Family Services decision did not preclude Bahra from bringing his Section 1102.5 claim to court.

But it was not a total victory for Bahra; the Ninth Circuit ruled against him with respect to his Section 1983 claims. Bahra had not argued that giving preclusive effect to the Section 1983 decision would go against legislative intent, so the Ninth Circuit did not address the issue. Instead, the court looked exclusively to the judicial character of the proceeding and, finding it sufficient, held that the Section 1983 claim was precluded, affirming the lower court.

If you have suffered workplace retaliation for whistleblowing activity, contact Bryan Schwartz Law.

New Decade, New Worker Protections: AB-5, Dynamex, and Independent Contractor vs. Employee Status in 2020

Struggles over newly-in-force AB-5 are already well under way.

AB (California State Assembly Bill) 5 is a newly-enacted California law codifying the landmark California Supreme Court case Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, under which many California workers are considered employees, who better benefit from California legal protections, rather than independent contractors. Bryan Schwartz Law has written about Dynamex here and here, and about AB-5 here. To recap, Dynamex established the “ABC” test for determining whether a worker is an employee or an independent contractor, with a presumption that a worker is an employee, and with the burden on companies to demonstrate that workers are independent contractors. Id. at 957. To meet this burden, the putative employer must show that the worker: (a) is free from the control and direction of the hiring entity, (b) performs work outside the usual scope of the entity’s business, and (c) is engaged in an independently established trade, occupation, or business. Id. at 964. Failing to demonstrate any one of these elements is sufficient to show an employee-employer relationship. Id. at 964. AB-5 codified this test for most workers in California.

The business community has mounted a campaign to weaken or eliminate this expansive protection for California workers. For instance, gig economy giants Uber, Lyft, and DoorDash have spent millions of dollars introducing a ballot measure to exempt them from AB-5 and permit them to continue exploiting their drivers. Uber has also changed its operations in California to try and satisfy AB-5, sending a letter to riders explaining their changes and threatening that AB-5 could hurt riders. Uber has also argued that it is a technology company instead of a transportation company (which does not even pass the laugh test), to try to help Uber satisfy the “B” prong of the test.

The trucking industry has also fought AB-5. On New Year’s Eve, federal judge Roger Benitez issued a temporary restraining order temporarily preventing enforcement of AB-5 “as to any motor carrier operating in California,” in the case California Trucking Association v. Becerra, 3:18-cv-02458-BEN-NLM. The temporary restraining order opined that there was a significant likelihood that AB-5’s applicability to truck drivers would be preempted (and thereby unenforceable) by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA” or “F-Quad-A”), which has language that applies to “any motor carrier.”

Los Angeles County Superior Court judge William Highberger went further in an order issued earlier this month in California v. CAL Cartage Transportation Express LLC, BC689320. The Los Angeles City Attorney’s Office filed the case on January 1, 2018, before Dynamex had been decided, and alleged that the company defendants had misclassified their truck drivers as independent contractors when they should have been classified as employees. Following Dynamex and AB-5, the Los Angeles City Attorney argued that the stronger “ABC” test should apply, while the defendant companies maintained that the previous multi-factor independent contractor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, should apply instead. The judge sided with the defendant companies, opining that AB-5 was in fact preempted by the FAAAA, under the premise that “Prong B of the ABC test . . . prohibits motor carriers from using independent contractors to provide transportation services.”

The issue is far from decided. Judge Highberger’s decision is surely going to be challenged on appeal, and hundreds of truck drivers have filed labor complaints to enforce their rights under AB-5, signaling further litigation. There also remains the question of whether Dynamex’s ABC test applies retroactively to disputes arising before Dynamex was handed down. Last fall, the 9th Circuit Court of Appeals certified this question to the California Supreme Court in Vazquez v. Pan-Pro Franchising International, Inc. The California Supreme Court is also reviewing a state appeals court case, Gonzales v. San Gabriel Transit, Inc., which held Dynamex to apply retroactively. The struggle over the worker protections of Dynamex and AB-5 goes on.

If you believe you are being treated as an independent contractor when you should be treated as an employee, contact Bryan Schwartz Law.

Settling for More: 9th Circuit Rules on Standards for Class Action Settlements

In most circumstances, opposing parties can resolve a legal dispute among themselves out of court until a court case is over. Class cases are different. To settle a class case, the parties have to ask the court hearing the case for approval.

This is because in class action settlements, absent class members waive their claims in exchange for the benefits of the settlement. Without notice of the settlement and its key terms, class members could waive their legal claims without realizing it, having a say in the terms of the agreement, or having the opportunity opt out of the agreement. This implicates absent class members’ due process rights.

To protect absent class members’ rights, the hearing court has a special duty to ensure that sufficient notice is provided to class members. The court must also take care that the settlement itself is fair. While courts usually balance and adjudicate competing interests in an adversarial context, the settling parties are in agreement in the context of a class action settlement. Especially concerning is the prospect that the parties could bargain away absent class members’ rights in order to secure a quick resolution that may not be in the class’s best interest.

Earlier this month, the 9th Circuit Court of Appeals rejected a class action settlement agreement in the high-profile class action case Murphy v. SFBSC Management. A pair of erotic dancers filed a class action case on behalf of 4,681 putative class members who currently or previously worked as erotic dancers for SFBSC Management’s 11 adult entertainment clubs in San Francisco, alleging that they had been misclassified as independent contractors when they should have been classified as employees. Bryan Schwartz Law has blogged about the distinction between employees and independent contractors here and here.

The parties settled and sought court approval. The trial court preliminarily approved the settlement, providing for notice of the settlement agreement to be sent to the class members’ last known mailing addresses, posted at the nightclubs’ dressing rooms, and posted online on a website created for this purpose. Initially, 1,546 notices were returned as undeliverable; after the settlement administrator performed address traces and resent notices, 560 notices remained undeliverable. Many class members lodged objections on several bases, but the court approved the settlement. The objectors appealed.

On appeal, the 9th Circuit agreed with almost all of the objectors’ complaints about the settlement agreement and the notice process.

I.                    Adequacy of the Notice

The objectors attacked the notice of class settlement in two ways. First, they argued that the notice did not inform class members that other similar lawsuits had been filed by other erotic dancers. The 9th Circuit rejected this claim—the only argument the objectors raised that the court rejected—holding that the class notices did not need to provide information to class members regarding related cases. Likewise, the notice did not need to describe any objections to the settlement agreement that had been raised.

Second, the objectors argued that the process of distributing the notice was insufficient. In particular, the objectors argued that the failure to provide any electronic notice (besides the website) was not the best practicable notice under the circumstances. The 9th Circuit agreed, noting that as many as 12% of the class received no notice by mail. In addition, the posters hung in the dressing rooms could only be viewed by current employees, whereas the class included former employees as well. Importantly, electronic notice may have been warranted if “reasonably calculated to appraise all class members of the settlement,” including email or even social media or “relevant online messaging boards.”

II.                 Standard of Review

Before the court examined the fairness of the agreement, the court first clarified the standard for courts to assess class action settlements. A court reviewing a class action settlement before the class has been certified requires a higher standard of fairness and a more probing inquiry. Reviewing courts should be on the lookout for subtle signs of collusion between the parties. The trial court in this case had begun its analysis with a presumption of fairness where a settlement was the product of arms-length negotiations between experienced attorneys. This standard was incorrect. The 9th Circuit also stated that it would not accept the mere presence of a neutral mediator as conclusive proof that the settlement was fair.

III.              Fairness of the Agreement

Next, the court examined several aspects of the settlement agreement that indicated possible unfairness. One of these was a clear sailing agreement with regards to attorneys’ fees. Under the provision, SFBSC Management agreed not to contest class counsel’s request for up to $1,000,000 in attorneys’ fees. The 9th Circuit observed that such agreements could be indicia that the agreement was reached at the expense of the class’s interests, especially in light of the high amount of attorneys’ fees requested.

The free sailing provision in this case called for attorneys’ fees greater than the net $864,115 to be distributed to the class. The parties arrived at the high amount of attorneys’ fees as a percentage of the total benefit of the settled claims, including the estimated value of two other areas of relief provided in the settlement agreement: (1) a Dance Fee Payment Pool, and (2) injunctive relief. Objectors challenged the sufficiency of the valuations for each, which had been set at $1,000,000 each.

Under the settlement agreement, class members could elect to receive payment from the Dance Fee Payment Pool of up to $1,000,000 in lieu of a lump sum cash settlement share. This money would come from the charges that the nightclubs would ordinarily retain from customer payments per dance. Dancers who selected this option could receive up to $8,000, but dancers had a limited amount of time in which to accrue payments from the Dance Fee Payment Pool.  

The court likened the Dance Fee Payment Pool to coupons, with reduced value to the class. This option had an expiration date, was not transferable, and required class members who no longer worked with SFBSC Management to do business with it again in order to claim the value. The 9th Circuit held that a court approving a class action settlement could not rely on such valuations except in the rare instance when non-monetary relief could be valuated exactly. Here, the parties did not put forth any evidence to support their valuation of the coupons.

Similarly, the 9th Circuit was troubled by the $1,000,000 valuation of the injunctive relief. The settlement agreement provided that SFBSC Management would allow dancers to elect whether to work as employees or independent contractors, each with its own form of compensation and employment structure. The court faulted the trial court for failing to make any findings specifically justifying the valuation of this benefit at $1,000,000.

The court was also wary of the enhancement awards called for in the settlement agreement for the named plaintiffs, to be taken from the general settlement fund. While the court was not concerned by the $5,000 enhancement payments in recognition of the plaintiffs’ efforts to represent the class and prosecute the case, the court found suspect the $20,000 enhancement payment for the general release the plaintiffs signed. The court saw no service to the class compensated by this enhancement. As such, the court viewed the enhancement as evidence of a potential side deal between the named plaintiffs and the employer, at the class’s expense, giving rise to a potential conflict of interest.

The court also looked at the settlement agreement’s reversionary effect. If class members did not cash their checks, those amounts would have reverted to SFBSC Management, rather than being redistributed to the class or a charitable organization that furthers the beneficial goals of the litigation. The 9th Circuit observed that reversionary agreements can indicate unfairness to the class, especially when coupons are involved. Combined, these factors drove the 9th circuit to reverse the trial court’s approval of the settlement agreement and remand for further proceedings.

If you have a dispute with your employer, contact Bryan Schwartz Law today.

No Question of Timing – Dynamex Applies Retroactively, Ninth Circuit Court of Appeals Says

It makes a big difference whether a worker is an employee or an independent contractor. Employees benefit from the protections of labor, employment, and other valuable statutory protections that do not cover independent contractors.

The breadth of “employee” status has been clarified under developing California law. Last year, the California Supreme Court decided the landmark case Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903, about which Bryan Schwartz Law has written previously. This case established the “ABC” test for determining whether a worker is an employee or an independent contractor, with a presumption that a worker is an employee, i.e., with the burden on putative employers to demonstrate that workers are independent contractors. Id. at 957. To meet this burden, the putative employer must show (a) that the worker is free from the control and direction of the hiring entity, (b) the worker performs work outside the usual scope of the entity’s business, and (c) the worker is engaged in an independently established trade, occupation, or business. Id. at 964. Failing to demonstrate any one of these elements is sufficient to show an employee-employer relationship. Id. at 964.

But does the Dynamex test apply retroactively to cases arising before it was decided? It does, according to the decision in Vazquez v. Jan-Pro Franchising International, Inc., which the Ninth Circuit Court of Appeals issued on May 2, 2019. Workers for international janitorial giant Jan-Pro filed this case in 2008, alleging Jan-Pro implements a business model to misclassify workers as independent contractors and escape the company’s minimum wage and overtime responsibilities. Jan-Pro contracts with franchises of “master owners,” which in turn contracts with “unit franchisees.” Master owners themselves do not clean but instead engage in various managerial or administrative duties; unit franchisees clean. The plaintiffs, janitorial workers at unit franchisees, alleged they were misclassified as independent contractors.

The case had a tortured procedural history with over a decade of litigation, dispositive decisions, and appeals in federal and state courts in California, Georgia, and Massachusetts. In the Ninth Circuit, Jan-Pro argued that a judicial ruling in Georgia had already decided the issue, thereby conclusively resolving the Ninth Circuit case as well under the doctrine of res judicata. Regardless, Jan-Pro argued, the Dynamex decision should not apply retroactively to cases arising before it was decided in 2018.

The Ninth Circuit rejected both arguments. The Court disposed of the res judicata arguments on grounds specific to the procedural history of the litigation. In brief, the Court held that the Massachusetts plaintiff was not in privity with the California plaintiffs, nor did he legally represent their interests—the California plaintiffs could not lose their day in court simply because of a similar case involving someone else on the east coast.

Next the Court addressed the important issue at stake for California workers: whether the Dynamex decision applied retroactively. The answer was a resounding “yes.” California’s judicial decisions traditionally apply retroactively, even when overruling past precedent. The Court adhered to this traditional rule, drawing further support from other California courts’ retroactive application of the Dynamex decision and the California Supreme Court’s summary denial of a petition to modify Dynamex to clarify that it was prospective only. Notably, despite its considerable impact on the lives of workers and employment law practice, the Dynamex decision did not create new law but instead hewed close to the fundamental purpose of existing California law. Because the lower court had dismissed the workers’ claims on summary judgment before Dynamex was decided, the Ninth Circuit remanded the case for a decision in light of Dynamex.

If you believe you are misclassified as an independent contractor and should enjoy the same rights as an employee, contact Bryan Schwartz Law.

Ninth Circuit Holds Catholic School Teacher fired after Cancer Diagnosis Can Sue School for Discrimination, Not Barred by First Amendment

On December 17, 2018, the Ninth Circuit reversed a decision by the United States District Court for the Central District of California in Biel v. St. James School, A Corp., et al., Case No. 17-55180.

Plaintiff Kristen Biel, a fifth-grade teacher for Defendant, filed a claim under the Americans with Disabilities Act (“ADA”) when St. James Catholic School fired her after she told the School that she had breast cancer and needed time off from work to undergo chemotherapy. The district court dismissed Biel’s claims at summary judgment—holding that her lawsuit under the ADA was barred by the First Amendment’s “ministerial exception.” After her case was dismissed, Plaintiff Biel appealed to the Ninth Circuit.

In November 2013, Plaintiff Biel received a positive teaching evaluation from the School’s principal, noting that Biel was “very good” at promoting a safe and caring learning environment for her students. Less than six months after that evaluation, Biel was diagnosed with breast cancer. When she disclosed her diagnosis to the School’s administrators, she was told her employment contract would not be renewed because “it was not fair … to have two teachers for the children during the school year.”

Biel sued St. James in the United States District Court for the Central District of California, alleging that her termination violated the ADA, which prohibits employment discrimination based on disability. St. James moved for summary judgment, arguing that the First Amendment’s ministerial exception to generally applicable employment laws barred Biel’s ADA claims. The district court agreed and granted summary judgment for St. James.

On appeal, the Ninth Circuit reversed, finding that the total circumstances of Biel’s employment did not qualify her as a minister for the purposes of the ministerial exception.

In Hosanna-Tabor, the only case where the U.S. Supreme Court has applied the ministerial exception, the Court focused on four major considerations to determine if the ministerial exception applied: (1) whether the employer held the employee out as a minister, (2) whether the employee’s title reflected ministerial substance and training, (3) whether the employee held herself out as a minister, and (4) whether the employee’s job duties included “important religious functions.” Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC, 565 U.S. 171, 192 (2012).

In Hosanna-Tabor, Cheryl Perich, a teacher for a Lutheran school, was fired after she was diagnosed with narcolepsy and brought ADA claims against the school. The Supreme Court found that the ministerial exception did apply because Perich was more than just a teacher in the Lutheran school. She had a special title of “Minister of Religion” conferred to her by the congregation and distinct from other teachers. Perich led her students in daily prayer, and she also led the school wide mass that occurred twice each school year. Perich claimed a federal tax benefit for employees earning compensation in the "exercise of the ministry" on her tax returns, and she also had to complete extensive religion training in the Lutheran doctrine that took her six years to complete in order to be a commissioned minister. In light of these circumstances, the Supreme Court held that Perish was a minister covered by the ministerial exception.

The Ninth Circuit found that Biel, by contrast, had no sort of credentials, training or titles like Perich. Biel was Catholic, but St. James Catholic School did not require its employees to be Catholic to teach. Biel did not have any extensive training in religion or the Catholic pedagogy. Biel taught all fifth-grade subjects, including a thirty-minute religion class using a workbook on the Catholic faith prescribed by the school administrators. And while Biel joined her students in prayer twice daily, Biel did not lead her students in prayer, and her only job duties at the School’s monthly mass were to keep her class orderly and quiet.

After a holistic examination of her training and duties demonstrated that Biel had a limited role in her student’s spiritual lives, the Ninth Circuit held the ministerial exception did not apply, reversing and remanding her case back to the district court. Biel’s lawyer, Andrew Pletcher, said Biel is still struggling with cancer but is delighted by the Ninth Circuit's ruling.