Once again, a California Court of Appeal has relied upon S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 [256 Cal.Rptr. 543] to articulate the test for employment.  In Caso, et al. v. Nimrod Productions, Inc., et al. (June 4, 2008) ___ Cal.Rptr.3d ___, the Court of Appeal (Second Appellate District, Division Seven) evaluated the interesting doctrine of "special employment."  Explaining the term, the Court said:

“When an employer lends an employee to another employer and relinquishes to the borrowing employer some right of control over the employee’s activities, a “special employment relationship” arises between the borrowing employer and the employee.

(Slip op., at p. 7.)  Citing Borello and other authority, the Nimrod Court (heh) said:

““In determining whether a special employment relationship exists, the primary consideration is whether the special employer has ‘“[t]he right to control and direct the activities of the alleged employee or the manner and method in which the work is performed, whether exercised or not . . . .”’” (Kowalski, supra, 23 Cal.3d at p. 175; see Borello, supra, 48 Cal.3d at p. 350.)

(Slip op., at p. 7.)

What makes this of interest is the (perceived - my opinion) increase in class action litigation arising from the practice of misclassifying employees as independent contractors, discussed previously here.  Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1 [64 Cal.Rptr.3d 327] provides one example in this trend.  And it seems reasonable to speculate that if the economy is actually entering a significant downturn (a premise that the media repeats but I decline to accept until real data shows a major downturn), employers may attempt with greater frequency to re-classify employees as independent contractors.  Were that to happen, an increase in that type of wage & hour class action would surely follow.  However, given that the strong emphasis on Borello seems to confirm that "right to control" and not actual control is the touchstone test for finding an employment relationship, class actions challenging independent contractor classifications may not go well, on the whole, for employers.  The long term costs of that miscalculation would likely exceed the immediate savings of designating employees as independent contractors.

On April 30, 2008, the Court of Appeal (Second Appellate District, Division 3), relying solely on S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 [256 Cal.Rptr. 543], applied the Borello employment factors test to newspaper carriers delivering the Antelope Valley Press, concluding that paper deliverypersons were employees.  (See this blog's May 12, 2008 post on Antelope Valley Press.)  Apparently Antelope Valley Press wasn't thrilled by that decision and filed a Petition for Rehearing. As is usually the case, the Court of Appeal wasn't thrilled with receiving a Brief indicating that it had done a poor job analyzing the situation, because it added a small footnote to its original decision:

“We reject AVP’s contention that the court’s analysis in JKH Enterprises is flawed. AVP asserts that JKH Enterprises did not “consider fully” the decision in Interstate Brands v. Unemployment Ins. Appeals Bd., supra, 26 Cal.3d 770, 773, 775, where the Supreme Court had affirmed the trial court’s determination that certain of the employees of Interstate Brands were not entitled to unemployment insurance benefits, and held that it was proper for the trial court to apply the independent judgment test in reviewing the evidence produced at an administrative hearing because the case affected a fundamental vested right of the employer. We note that the Supreme Court denied review in JKH Enterprises. We also note that the Interstate Brands court did not address the question whether the subject workers were employees or independent contractors. Their employee status was admitted by Interstate Brands. However, Borello did address that issue, and there the Supreme Court simply stated that “[t]he determination of employee or independent-contractor status is one of fact if dependent upon the resolution of disputed evidence or inferences, and the [administrative agency’s] decision [on that status issue] must be upheld if substantially supported.” (Borello, supra, 48 Cal.3d at p. 349, italics added.) The Borello court did not state whether the question of worker status involves or affects a fundamental vested right. As noted in footnote 13, post, the evidence in this case is disputed. Therefore, in deciding this appeal in favor of upholding the Commissioner’s decision that the carriers are employees and not independent contractors for purposes of workers’ compensation insurance, we did so by addressing the question whether that decision is substantially supported by the evidence in the administrative record.

(May 30, 2008 Order Modifying Opinion.)  The Court finished by denying the Petition for Rehearing.  You didn't see that one coming, did you?

I know that the Petition for Rehearing is often filed just to establish that every effort for review has been exhausted prior to filing a Petition for Review with the California Supreme Court.  In other words, the denial is presumed and the rehearing request is mechanical.  But if you file a Petition for Rehearing with the idea that it will actually help your client, think again.  Compared to Petitions for Writs, which are rarely granted, the odds on winning California's lottery must be better than getting a Rehearing Petition granted.

Because employers reap substantial savings when independent contractors can satisfy the needs of a business in place of employees, there is a financial incentive to misclassify employees as independent contractors. Decisional authority agrees that, due to the “infinite variety of service arrangements,” it is difficult to formulate a single test or standard that can determine whether an individual should be classified as an employee or an independent contractor. (S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350 [256 Cal.Rptr. 543].)

In Borello, the California Supreme Court collected its decisions on the determination of an employment relationship. Borello held that “ ‘[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired....’ ” (Borello, at p. 350.) Borello then discussed “secondary” indicia of the nature of the service relationship. First, Borello said that “ ‘[s]trong evidence in support of an employment relationship is the right to discharge at will, without cause.’ ” (Ibid.) Borello then summarized other “secondary” indicia of employment status:

Additional factors have been derived principally from the Restatement Second of Agency. These include (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.

(Borello, at p. 351.) Since Borello, defendants have chafed at reliance upon Borello outside of the worker’s compensation context. Those challenges have uniformly been rejected: