A Victory for App-Based Drivers: California Superior Court Strikes Down Proposition 22

In a momentous win for app-based drivers, the California Superior Court struck down Proposition 22 on August 20th, 2021. Gig companies such as Uber and Lyft spent an unprecedented $200,000,000+ to pass Proposition 22 in order to exempt themselves from treating app-based drivers as employees. Designating these workers as independent contractors allows companies like Uber and Lyft would to avoid their obligations to provide basic protections to their drivers, including a minimum wage, health insurance, contributions to workers compensation, and the ability to unionize. Bryan Schwartz Law has written before about these and other dangers of Prop 22: as independent contractors, drivers are paid an effective rate of about $5.64 per hour, well under the minimum wage, and would be denied an array of vital benefits and protections. 

Although proponents of Proposition 22 claimed that it would protect the independence of app-based drivers, the California Superior Court disagreed in Castellanos. The court even found that a provision of Proposition 22 that prohibited the Legislature from passing laws allowing app-based drivers to unionize only served to “protect the economic interests of the network companies in having a divided, ununionized workforce” and was completely unrelated to the stated goal of protecting drivers. The court found that this provision was therefore outside of the “single-scope” of Proposition 22; however, because the provision was severable, this finding did not impact the rest of the proposition.

Even more striking to the court was how Proposition 22 curtailed the ability of the Legislature to provide a robust system of workers’ compensation, an essential part of our social safety net. Our Legislature’s ability to protect injured workers through an expansive workers’ compensation program is so critical that the power is enshrined in the California Constitution and completely unlimited by any other provision of the Constitution. Only a Constitutional amendment can reduce workers’ right to receive worker compensation. Proposition 22’s attempt to create a statute that reduced the number of employees eligible for workers compensation was therefore unconstitutional. Unlike the provision limiting drivers’ ability to unionize, this provision limiting workers’ compensation was not severable, so the court’s ruling that this provision was unconstitutional meant that the entirety of Proposition 22 was rejected.

Before Proposition 22 was in place, California used the ABC test that was established by the 2018 California Supreme Court decision in Dynamex, and codified by AB5, to determine whether someone is an employee or an independent contractor. Under the ABC test, a worker is an independent contractor only if: 1) the worker is not controlled or directed by their employer in how they perform their work, 2) their work is outside the scope of the employer’s usual business, and 3) the worker is working in an independently established trade or business that matches their work for their employer. The employer must prove each of these elements before it can call a worker an independent contractor. The ABC test makes it much more difficult for employers to classify workers as independent contractors, which allows many more workers to receive the benefits and protections to which they are entitled. 

The decision in Castellanos vindicates the rights of hundreds of thousands of app-based drivers throughout California. This decision will likely be appealed, but it still represents an important step towards ensuring that app-based drivers receive the respect and protections that they deserve.

 

If you believe you have been misclassified as an independent contractor, please contact Bryan Schwartz Law.

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.

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.

SCOTUS Allows Millions of Transportation Workers to Have Their Day in Court.

In recent decades, the U.S. Supreme Court has largely sided with big business over workers, consumers, and small businesses when victims of wage theft, fraud, and monopolist market abuses[1] band together to prove their case in open court. This past week was a rare exception for potentially millions of transportation workers across the United States.

Brief Background

The FAA generally requires courts to enforce arbitration clauses according to the terms of such clauses, which businesses have forced on individuals in the workplace, in consumer contracts, and in many other contexts (e.g., nursing homes that allegedly cause their residents to die from substandard care). However, Section 1 of the FAA provides an important exception to this general rule, exempting “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from the otherwise strict enforcement of arbitration agreements. 9 U.S.C. § 1.

Upshot of the New Prime Decision

Writing for an 8-0 majority, Justice Gorsuch’s opinion in New Prime Inc. v. Oliveira contains two key takeaways: (1) transportation workers are entitled to their day in court even if both sides signed an arbitration agreement and the transportation workers are classified (or arguably misclassified) as independent contractors, and (2) before ordering workers, consumers, and others to secret, one-on-one binding arbitration under the Federal Arbitration Act (“FAA”), courts still have the power to decide whether any exceptions apply that would allow these groups to have their day in open court.

The Majority’s Reasoning in New Prime

The New Prime majority relied heavily on the text and structure of Sections 1-4 of the FAA to hold that a business cannot take away a court’s authority to decide whether the exception contained in Section 1 applies to a particular dispute. No. 17-340, 2019 WL 189342, at **3-4 (U.S. Jan. 15, 2019). The Court noted that Section 3’s mandate to enforce arbitration agreements according to their terms is limited by Section 1’s exclusion for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Id. at *4 (citing 9 U.S.C. § 1).[2] Based on the FAA’s “terms and sequencing” of its statutory provisions, the Court concluded that “a court should decide for itself whether § 1's ‘contracts of employment’ exclusion applies before ordering arbitration.” Id.

Finding that it has authority to review whether the exception in Section 1 applies to Mr. Oliveira’s arbitration agreement with his former employer, the Court went on to address whether Mr. Oliveira’s written agreement with New Prime was a “contract[] of employment” as the term is used in Section 1 of the FAA. Here, the Court determined that the original meaning of “contracts of employment” in 1925 included both the modern idea of an employer/employee relationship and also true independent contractors. Id. at **6-7. The Court swatted down the company’s attempt to argue that the Court should ignore the plain text of the FAA, and instead make from whole cloth a general federal policy of compelling all disputes to arbitration. (“Unable to squeeze more from the statute's text, New Prime is left to appeal to its policy. … By respecting the qualifications of § 1 today, we respect the limits up to which Congress was prepared to go when adopting the Arbitration Act.”) (internal citations and quotation marks omitted). Id. at *9.

If you are a transportation worker like the lead plaintiff in the New Prime, Dominic Oliveira,[3] know that you are entitled to your day in court to recover your lost wages and expenses.

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[1] Justice Kagan’s dissent in this case, Italian Colors, sums up the state of play well:

Here is the nutshell version of this case, unfortunately obscured in the Court's decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract's arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool's errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.

And here is the nutshell version of today's opinion, admirably flaunted rather than camouflaged: Too darn bad.

Am. Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 240 (2013) (emph. added).

[2] The Court also drew upon the then-contemporary 1925 legal landscape in which “Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties' private contracts might happen to contemplate.” Id.

[3] You can learn more about Mr. Oliveira’s personal story here.

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.

Defeating Chindarah v. Pick Up Stix Releases

California employers sometimes seek to nip wage and hour class actions in the bud by buying off individual class members for nominal payments. At least one poorly-reasoned California appellate decision, Chindarah v. Pick Up Stix, 171 Cal. App. 4th 796 (2009), seems to permit it. In a recent independent contractor misclassification class action brought by Bryan Schwartz Law, Marino v. CAcafe, the primary defendant tried just such a tactic, mere weeks after the case was filed late last year. The corporate manager asked each employee-former employee to sign a release based upon a supposed “restructuring” but failed to disclose the existence of the workers’ just-filed lawsuit. The U.S. District Court for the Northern District of California issued a strongly-worded opinion, invalidating all releases improperly obtained from putative class members by the defendants, despite Chindarah, and ordering related relief because the employer’s “communications with the putative class members concealed material information and were misleading.” Marino v. CAcafe, Inc. et al., Case No. 4:16-cv-06291-YGR, slip op. at 3 (filed Apr. 28, 2017) (full opinion available here).

The court explained that “[w]hile the evidence does not indicate the high degree of coercion present in other cases, the fact remains that [the defendants] communicated with putative class members after the lawsuit was filed, but before they had received any formal notice and before plaintiff’s counsel had been given an opportunity to communicate with them.” Id. at 3. Importantly, the defendants’ “communications did not inform putative class members that there was a lawsuit pending that concerned their legal rights, the nature of the claims, plaintiff’s counsel’s contact information, the status of the case, or any other information that might have permitted them to allow them to make an informed decision about the waiver of their rights.” Id. at 4. This conduct “undermine[d] the purposes of Rule 23 and require[d] curative action by the court.” Id. at 3. To correct the harmful effects of defendants’ improper communications, the court:

·     invalidated all releases obtained from putative class members,

·     prohibited the defendants from requesting any reimbursement of payments made,

·    ordered curative notice be issued to all putative class members regarding their rights and the court’s intervention on their behalf (paid for by the defendants),

·    enjoined the defendants responsible for making the communications from engaging in any further ex parte communications with putative class members regarding the litigation or any release of claims until the court has the opportunity to rule on the issue of conditional certification of the FLSA collective action, and

·   ruled that class members who signed releases in exchange for payments could keep those payments, regardless of the outcome of the case.

Id. at 5.

Workers’ advocates should not hesitate to bring motions for corrective action when defendants attempt to subvert the rights of workers and Federal Rule of Civil Procedure 23 (governing class actions) by embarking on a Chindarah campaign. A court need not find a high degree of coercive conduct on the part of an employer to warrant invalidation of releases obtained from putative class members. If the employer uses misleading tactics to obtain releases from putative class action members – like omitting the fact that a class action has been filed against the defendant for wage violations, and failing to disclose contact information of the plaintiffs’ lawyers – then you may have strong grounds to remedy the defendant’s misconduct. See generally Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981); Retiree Support Grp. of Contra Costa Cty. v. Contra Costa Cty., 2016 WL 4080294, at *6 (N.D. Cal. July 29, 2016) (collecting 8 cases).

Contact Bryan Schwartz Law with any questions about questionable releases of wage and hour claims.