The Ninth Circuit is interested in learning whether the California Supreme Court thinks Dynamex applies retroactively

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Here’s a tiny little nugget of interest. Today, in Vazquez v. Jan-Pro Franchising International, Inc. (9th Cir. July 22, 2019), the Ninth Circuit issued an Order granting a Petition for Panel Rehearing. That’s not the interesting part. The stated plan to certify a question to the California Supreme Court is, however, interesting:

The opinion in the above-captioned matter filed on May 2, 2019, and published at 923 F.3d 575, is WITHDRAWN. A revised disposition and an order certifying to the California Supreme Court the question of whether Dynamex Ops. W. Inc. v. Superior Court, 416 P.3d 1 (Cal. 2018), applies retroactively will be filed in due course.

Order, at 2. Do you feel like it never stops? That there is never a moment when you can say, “This is the wage and hour law of California.”? I do.

McCleery v. Allstate Ins. Co. affirms the denial of class certification in a complicated, multi-party suit alleging independent contractor misclassification

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I think it is not a stretch to opine that independent contractor misclassification is, by far, the easiest misclassification theory to pursue on a classwide basis (as compared to, for example, cases about the administrative exemption for store managers). In McCleery v. Allstate Ins. Co. (July 15, 2019), the Court of Appeal (Second Appellate District, Division One), in an opinion issued following a grant of rehearing for the second appeal in the matter, we see why there are limits to what is possible even in the comparatively straightforward arena of independent contractor misclassification. The fact summary suggests that this was too big a bite:

Property inspectors Timothy McCleery, Yvonne Beckner, Terry Quimby and April Boyles Jackson filed this action on behalf of themselves and similarly situated persons, alleging defendants Allstate Insurance Company and Farmers Group, insurers for whom the plaintiffs provided property inspection services, and CIS Group LLC/North American Compass Insurance Services Group (CIS), Advanced Field Services, Inc. (AFS), and Capital Personnel Services, Inc. (PMG), service companies contracting to provide inspection services, concocted a scheme to insulate themselves from labor laws by nominally employing plaintiffs as independent contractors while retaining control over all aspects of their work. Plaintiffs purport to represent a putative class of approximately 1,550 property inspectors in California.

Slip op., at 3-4. At the first go-round, the trial court denied certification, summarily rejected a statistical sampling plan, and concluded that individualized determinations were required for each class members. The Court of Appeal reversed, directing the trial court to consider whether proposed sampling and statistical methods could render some or all of the individualized issues manageable. After additional briefing and an extensive survey, the trial agreed that the survey was carefully crafted to maximize accuracy but still failed to address key individual issues:

However, the court found that plaintiffs’ statistical sampling alone did not render their claims manageable. It found that Dr. Krosnick’s survey results failed to specify for which insurers inspections were performed, or to explain whether the inspectors’ failure to take meal or rest breaks was due to preference or to the exigencies of the job. Also, the survey’s anonymity foreclosed the defendants from cross-examining witnesses to verify responses or test them for accuracy or bias.

Slip op., at 17. The trial court again denied certification and the plaintiffs again appealed.

While several issues were of concern to the Court, the inability of the defendants to examine any survey respondents (who were kept anonymous from the survey expert) was viewed as an impediment to the defendants’ ability to cross-examine the actual class members who participated in the survey:

In fact, plaintiffs expressly admit they intend to answer the ultimate question in this case based solely on expert testimony—testimony founded on multiple hearsay that defendants could never challenge. As Dr. Krosnick declared, “ Respondents are not testifying witnesses. Instead, . . . . [i]t is the expert who will offer opinions . . . , and the expert can be cross-examined.” But “[a]lthough an expert ‘may rely on inadmissible hearsay in forming his or her opinion [citation], and may state on direct examination the matters on which he or she relied, the expert may not testify as to the details of those matters if they are otherwise inadmissible.’ ” (Korsak v. Atlas Hotels, Inc. (1992) 2 Cal.App.4th 1516, 1525.)

Slip op., at 24-25. The plan to rely, almost exclusively according to the Court, on an anonymous, double-blind survey to prove liability was viewed as a bridge too far, no matter how scientifically the survey was crafted. The Court, citing Duran and Brinker, concluded that the trial court acted within its discretion when denying certification.

I admit to having some sympathy, as it is my experience that the similar insurance, lender, and real estate property inspection industries are carefully constructed in an attempt to support the notion that the end companies requesting the inspections and setting very detailed parameters for how those inspections are to occur are not employers of the people out performing those inspections for them. What this opinion will have the tendency to do is insulate the biggest companies because of the complex hairball of crossing middle-tier vendors they have created, while directing attention to the smaller middle-tier vendors that act as the go-betweens for the insurance, lender, and real estate companies.

Ninth Circuit concludes that the Dynamex "ABC test" applies retroactively

I missed this little nugget when it came out last month, but it’s worth noting regardless because it may move the needle in existing cases. In Vazquez, et al. v. Jan-Pro Franchising International, Inc. (9th Cir. May 2, 2009), the Ninth Circuit considered whether Dynamex Ops. W. Inc. v. Superior Court, 416 P.3d 1 (Cal. 2018) applied to a District Court decision that pre-dated Dynamex.

On that point, the Court agreed that the default rule of retroactive application of judicial decisions should apply after a thorough analysis of the limited bases for an exception to that default rule:

Given the strong presumption of retroactivity, the emphasis in Dynamex on its holding as a clarification rather than as a departure from established law, and the lack of any indication that California courts are likely to hold that Dynamex applies only prospectively, we see no basis to do so either.

Slip op., at 26. The Court then considered whether due process considerations could preclude retroactive application and held that such considerations did not:

Applying Dynamex retroactively is neither arbitrary nor irrational. The Dynamex court explained that “wage orders are the type of remedial legislation that must be liberally construed in a manner that services its remedial purpose.” 416 P.3d at 32. Moreover, Dynamex made clear that California wage orders serve multiple purposes. One is to compensate workers and ensure they can provide for themselves and their families. Id. But second, wage orders accord benefits to entire industries by “ensuring that . . . responsible companies are not hurt by unfair competition from competitor businesses that utilize substandard employment practices.” Id. And finally, wage orders benefit society at large. Without them, “the public will often be left to assume responsibility for the ill effects to workers and their families resulting from substandard wages or unhealthy and unsafe working conditions.” Id. It is with these purposes in mind that the California Supreme Court embraced the ABC test and found it to be “faithful” to the history of California’s employment classification law “and to the fundamental purpose of the wage orders.” Id. at 40.

Slip op., at 27-28.

The balance of the Opinion examined the merits of the case, providing significant guidance to the District Court on remand.

Separate from the content of the Opinion, I am impressed by the formatting of the Opinion. The Opinion contains a hyper-linked table of contents that improves navigation through the long decision. Because I was curious about the formatting, I did a quick spot check of recent opinions and could not find a similarly formatted document. This makes me wonder why this is not standard. I note that Judge Block, of the Eastern District of New York (sitting by designation) authored the opinion. If you happen to know why the formatting of this Opinion is so good, leave a comment.

The prevailing plaintiffs were represented by Shannon Liss-Riordan of Lichten & Liss-Riordan P.C., Boston, Massachusetts.

Misclassifcation of independent contractors gets a boost in Ayala v. Antelope Valley Newspapers

As I fill the backlog, we have yet another big decision from the California Supreme Court. In Ayala v. Antelope Valley Newspapers, 59 Cal. 4th 522 (June 30, 2014), the Supreme Court examined how the question of certification should be answered in the context of misclassification of independent contractors.  Newspaper carriers, classified as independent contractors, filed suit to obtain remedies available to employees under California’s wage & hour laws.  Plaintiffs moved for class certification.  The trial court concluded the case could not proceed as a class action, holding that on the critical question whether plaintiffs and the class were employees, plaintiffs had not shown common questions predominate.  The trial court held that to determine employee status for the class would necessitate numerous unmanageable individual inquiries into the extent to which each carrier was afforded discretion in his or her work.  The Court of Appeal disagreed in part, holding that the trial court had misunderstood the nature of the inquiries called for, and remanded for reconsideration of the class certification motion as to five of the complaint’s claims.

The Supreme Court affirmed the Court of Appeal.  Beginning with the test for employee status as the key issue for evaluating the commonality issue, the Court said:

We begin by identifying the principal legal issues and examining the substantive law that will govern. In doing so, we do not seek to resolve those issues. Rather, the question at this stage is whether the operative legal principles, as applied to the facts of the case, render the claims susceptible to resolution on a common basis. (Brinker, supra, 53 Cal.4th at pp. 1023–1025, 139 Cal.Rptr.3d 315, 273 P.3d 513; Sav–On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 327, 17 Cal.Rptr.3d 906, 96 P.3d 194 [the focus “is on what type of questions—common or individual—are likely to arise in the action, rather than on the merits of the case”].)

The trial court and Court of Appeal correctly recognized as the central legal issue whether putative class members are employees for purposes of the provisions under which they sue. If they are employees, Antelope Valley owes them various duties that it may not have fulfilled; if they are not, no liability can attach. In turn, whether putative class members' employee status can be commonly resolved hinges on the governing test for employment.

Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522, 530 (2014).  The Court observed that the test relied upon in the Courts below was the Borello common law test. After considering the need to examine other employment tests, the Court concluded that the case could be resolved by focusing on the common law test exclusively.  The Court then restated the essentials of the common law test for employment:

Under the common law, “ ‘[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, supra, 48 Cal.3d at p. 350, 256 Cal.Rptr. 543, 769 P.2d 399, quoting Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946, 88 Cal.Rptr. 175, 471 P.2d 975; accord, Empire Star Mines Co. v. Cal. Emp. Com. (1946) 28 Cal.2d 33, 43, 168 P.2d 686.) What matters is whether the hirer “retains all necessary control” over its operations. (Borello, at p. 357, 256 Cal.Rptr. 543, 769 P.2d 399.) “ ‘[T]he fact that a certain amount of freedom of action is inherent in the nature of the work does not change the character of the employment where the employer has general supervision and control over it.’ ” (Burlingham v. Gray (1943) 22 Cal.2d 87, 100, 137 P.2d 9; see Toyota Motor Sales U.S.A., Inc. v. Superior Court (1990) 220 Cal.App.3d 864, 876, 269 Cal.Rptr. 647; Grant v. Woods (1977) 71 Cal.App.3d 647, 653, 139 Cal.Rptr. 533.) Perhaps the strongest evidence of the right to control is whether the hirer can discharge the worker without cause, because “[t]he power of the principal to terminate the services of the agent gives him the means of controlling the agent's activities.” (Malloy v. Fong (1951) 37 Cal.2d 356, 370, 232 P.2d 241; see Borello, at p. 350, 256 Cal.Rptr. 543, 769 P.2d 399; Kowalski v. Shell Oil Co. (1979) 23 Cal.3d 168, 177, 151 Cal.Rptr. 671, 588 P.2d 811; Isenberg v. California Emp. Stab. Com. (1947) 30 Cal.2d 34, 39, 180 P.2d 11; Burlingham, at pp. 99–100, 137 P.2d 9.)

Ayala, 59 Cal. 4th at 531.  The Court added an additional, significant observation to this formulation, observing, “The worker's corresponding right to leave is similarly relevant: “ ‘An employee may quit, but an independent contractor is legally obligated to complete his contract.’ ” (Perguica v. Ind. Acc. Com. (1947) 29 Cal.2d 857, 860, 179 P.2d 812.)”  Ayala, 59 Cal. 4th at 531 n. 2.  The Court then listed the secondary factors that a court may consider, including: (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.

Next the Court turned to the question of whether certification should have been granted in this matter. Before doing so, however, the Court framed the core question, right to control, at issue in the case:

Significantly, what matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise. (Perguica v. Ind. Acc. Com., supra, 29 Cal.2d at pp. 859–860, 179 P.2d 812 [“The existence of such right of control, and not the extent of its exercise, gives rise to the employer-employee relationship.”]; Empire Star Mines Co. v. Cal. Emp. Com., supra, 28 Cal.2d at p. 43, 168 P.2d 686 [“If the employer has the authority to exercise complete control, whether or not that right is exercised with respect to all details, an employer-employee relationship exists.”]; Industrial Ind. Exch. v. Ind. Acc. Com. (1945) 26 Cal.2d 130, 135, 156 P.2d 926 [“The 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, gives rise to the employment relationship.”]; S.A. Gerrard Co. v. Industrial Acc. Com. (1941) 17 Cal.2d 411, 414, 110 P.2d 377 [“the right to control, rather than the amount of control which was exercised, is the determinative factor”]; Hillen v. Industrial Acc. Com. (1926) 199 Cal. 577, 581–582, 250 P. 570 [“It is not a question of interference, or non-interference, not a question of whether there have been suggestions, or even orders, as to the conduct of the work; but a question of the right to act, as distinguished from the act itself or the failure to act.”].) Whether a right of control exists may be measured by asking “ ‘ “whether or not, if instructions were given, they would have to be obeyed” ’ ” on pain of at-will “ ‘ “discharge[ ] for disobedience.” ’ ” (Toyota Motor Sales U.S.A., Inc. v. Superior Court, supra, 220 Cal.App.3d at p. 875, 269 Cal.Rptr. 647.)

Ayala, 59 Cal. 4th at 533.  Applying this test to the case before it, the Court observed that:

at the certification stage, the relevant inquiry is not what degree of control Antelope Valley retained over the manner and means of its papers' delivery. It is, instead, a question one step further removed: Is Antelope Valley's right of control over its carriers, whether great or small, sufficiently uniform to permit classwide assessment? That is, is there a common way to show Antelope Valley possessed essentially the same legal right of control with respect to each of its carriers? Alternatively, did its rights vary substantially, such that it might subject some carriers to extensive control as to how they delivered, subject to firing at will, while as to others it had few rights and could not have directed their manner of delivery even had it wanted, with no common proof able to capture these differences?

Ayala, 59 Cal. 4th at 533-34.  The Court concluded that the trial court lost sight of these questions in its analysis:

The trial court lost sight of this question. Its order reveals the denial of certification ultimately rested on two related determinations: (1) the record reflected considerable variation in the degree to which Antelope Valley exercised control over its carriers; and (2) the putative class as a whole was not subject to pervasive control as to the manner and means of delivering papers. Neither of these considerations resolves the relevant inquiry. Whether Antelope Valley varied in how it exercised control does not answer whether there were variations in its underlying right to exercise that control that could not be managed by the trial court. Likewise, the scope of Antelope Valley's right to control the work does not in itself determine whether that right is amenable to common proof.

Ayala, 59 Cal. 4th at 534.  The Court discussed briefly the evidence available to the Court, focusing heavily on the contract between the newspaper carriers and the defendant.  The Court found that even variations in the actual degree of control over different carriers was likely irrelevant if the right to control them all was effectively identical:

[T]he existence of variations in the extent to which a hirer exercises control does not necessarily show variation in the extent to which the hirer possesses a right of control, or that the trial court would find any such variation unmanageable. That a hirer may monitor one hiree closely and another less so, or enforce unevenly a contractual right to dictate the containers in which its product is delivered, does not necessarily demonstrate that the hirer could not, if it chose, monitor or control the work of all its hirees equally. (See Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 13–14, 64 Cal.Rptr.3d 327 [recognizing that how a hirer exercised control over a particular hiree might show, not the hirer's differential control of that hiree, but the extent of its common right to control all its hirees].) For class certification under the common law test, the key question is whether there is evidence a hirer possessed different rights to control with regard to its various hirees, such that individual mini-trials would be required. Did Antelope Valley, notwithstanding the form contract it entered with all carriers, actually have different rights with respect to each that would necessitate mini-trials?

Ayala, 59 Cal. 4th at 535-36.  The Court then explained the frequent error made in the certification analysis of claims based on independent contractor misclassification:

Certification of class claims based on the misclassification of common law employees as independent contractors generally does not depend upon deciding the actual scope of a hirer's right of control over its hirees. The relevant question is whether the scope of the right of control, whatever it might be, is susceptible to classwide proof. Bypassing that question, the trial court instead proceeded to the merits. In so doing, the court made the same mistake others have when deciding whether to certify claims predicated on common law employee status, “focus[ing] too much on the substantive issue of the defendant's right to control its newspaper deliverers, instead of whether that question could be decided using common proof.” (Dalton v. Lee Publications, supra, 270 F.R.D. at p. 564.) Moreover, by purporting to resolve on a classwide basis the scope of Antelope Valley's right to control its carriers, the trial court contradicted its own conclusion, that classwide assessment of Antelope Valley's right to control is infeasible.

Ayala, 59 Cal. 4th at 537.  The Court concluded by noting that many of the secondary factors must also be evaluated correctly to determine if common proof will adequately determine the secondary factor in question:

Preliminarily, we caution that courts assessing these secondary factors should take care to correctly identify the relevant considerations. Here, for example, the trial court noted variation in the “place of work.” The inquiry that sheds light on a hiree's common law employee status, however, is into who provides the place of work, the hirer or hiree (Borello, supra, 48 Cal.3d at p. 351, 256 Cal.Rptr. 543, 769 P.2d 399; Rest.3d Agency, § 7.07, com. f, p. 211; Rest.2d Agency, § 220, subd. (2)(e)), and thus the relevant inquiry is whether there is variation in who provides facilities. That carriers could pick up papers at any of several Antelope Valley warehouses or drop locations, as Antelope Valley argued, does not show variation in the underlying secondary factor.

Ayala, 59 Cal. 4th at 538.

The Court remanded with instructions to consider the certification question in light of the Court’s guidance.

Court of Appeal delivers stunnig rebuke of misclassification certification opinions based on Brinker

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I was pretty confident that you would need to have an unhealthy love of pain to take on a manger misclassification class action after the long line of bad outcomes for those cases (Dunbar, Mora, Arenas, Tuesday Morning, etc.).  But Martinez v. Joe's Crab Shack Holdings, 221 Cal. App. 4th 1148 (pub. ord. Dec. 4, 2013), once again channeling the ghost of Brinker, makes me think that we are back to wait-and-see time.  And, yes, another case that deserved attention a lot sooner than this.  That's what I get for starting my own firm.  Anyhow, on to our story...

In Martinez, employees of different Joe's Crab Shack (JCS) restaurants in California filed suit, seeking to represent a class of salaried managerial employees who worked at JCS restaurants in California.  The parties submitting conflicting groups of declarations.  Presented with this evidence, the trial court denied the motion for class certification on the grounds plaintiffs had failed to establish (1) their claims were typical of the class, (2) they could adequately represent the class, (3) common questions predominated the claims, and (4) a class action is the superior means of resolving the litigation.  The first two findings were based on plaintiffs' inability to estimate the number of hours spent on individual exempt and nonexempt tasks and their admission that the amount of time spent on particular tasks varied from day to day. As to the third and fourth findings, the trial court acknowledged the existence of common questions of law and fact, but concluded there remained significant individual disputed issues of fact relating to the amount of time spent by individual class members on particular tasks. The variability among individual members of the putative class would require adjudication of the affirmative defense of exemption for each class member, “a time- and resource-consuming process.” The trial court rejected as unfair plaintiffs' proffered trial plan, under which their expert proposed to assess the rate at which managerial employees are engaged in nonexempt tasks through statistical sampling methods. Under these circumstances, the court concluded, a class action would not be the superior means of resolving the litigation.

Examining the trial court’s reasoning, the Court began with a discussion of its typicality and adequacy findings, rejecting the narrow analysis supplied by the trial court:

With respect to typicality, this analysis suffers from an overly focused examination of the facts that looked toward individual differences rather than commonality. In essence, the trial court resolved the factual conflict between plaintiffs' declarations, in which they stated nonexempt tasks routinely occupied more than 50 percent of their time, and their deposition testimony that they could not estimate the number of hours they spent on individual tasks because those tasks varied day to day. The inability of the witnesses to specify time spent on particular tasks is hardly surprising, however, and does not create an issue that must be resolved on a motion for class certification. What was common to plaintiffs, in addition to the standard policies implemented by CAI at each of their restaurants, were their assertions their tasks did not change once they became managers; they performed a utility function and routinely filled in for hourly workers in performing nonexempt tasks; and they worked far in excess of 40 hours per week without being paid overtime wages. Their claims—and the defense of executive exemption to those claims—are thus typical of the class.

Martinez, 221 Cal. App. 4th at 1159.  Turning to the conflict between general managers and assistant manager, the Court agreed that antagonism existed but found it non-fatal:  “This apparent conflict, however, is not fatal. In the interest of preserving the claims of subordinate managerial employees, the trial court may on remand exercise its discretion to create a general managers subclass or to exclude general managers entirely from the class definition.” Martinez, 221 Cal. App. 4th at 1160.

Next, the Court found that the trial court’s reasoning regarding commonality shifted the burden of proof improperly onto the plaintiffs:

The trial court's failure here to focus on the impact of JCS policies and practices on its managerial employees essentially shifted the burden of disproving the executive exemption to plaintiffs. Indeed, although the court recognized the evidence established the existence of a finite task list that could aid in the identification of common issues among the putative class members, its analysis effectively omitted any consideration of this potential class-wide proof.

A recent decision from our colleagues in Division Two of this court simplifies this endeavor and illustrates the enormous cost of resolving these claims on an individual, rather than a class-wide basis. (See Heyen v. Safeway Inc. (2013) 216 Cal.App.4th 795, 157 Cal.Rptr.3d 280 (Heyen ).)21 After reviewing analogous regulations for mercantile workers, Heyen articulated the appropriate manner of evaluating an employer's duties: “Several general principles emerge from these regulations. First, work of the same kind performed by a supervisor's nonexempt employees generally is ‘nonexempt,’ even when that work is performed by the supervisor. If such work takes up a large part of a supervisor's time, the supervisor likely is a ‘nonexempt’ employee. [Citations.] [¶] Second, the regulations do not recognize ‘hybrid’ activities—i.e., activities that have both ‘exempt’ and ‘nonexempt’ aspects. Rather, the regulations require that each discrete task be separately classified as either ‘exempt’ or ‘nonexempt.’ [Citations.] [¶] Third, identical tasks may be ‘exempt’ or ‘nonexempt’ based on the purpose they serve within the organization or department. Understanding the manager's purpose in engaging in such tasks, or a task's role in the work of the organization, is critical to the task's proper categorization. A task performed because it is ‘helpful in supervising the employees or contribute[s] to the smooth functioning of the department’ is exempt, even though the identical task performed for a different, nonmanagerial reason would be nonexempt. [Citations.] [¶] Finally, in a large retail establishment where the replenishing of stocks of merchandise on the sales floor ‘is customarily assigned to a nonexempt employee, the performance of such work by the manager or buyer of the department is nonexempt.’ [Citation.] Similarly, in such a large retail establishment, a manager's participation in making sales to customers is nonexempt, unless the sales are made for ‘supervisory training or demonstration purposes.’ ” (Id. at pp. 822–823, 157 Cal.Rptr.3d 280.)

Applying these principles to the tasks identified by CAI and Landry's, inventory, restocking, serving, cooking, bussing tables, cleaning and other tasks ordinarily performed by nonexempt employees remain nonexempt when performed by a managerial employee. Likewise, when a managerial employee fills in for a nonexempt employee, the task remains nonexempt. On the other hand, if the managerial employee is performing the task for the purpose of supervisory training or demonstration, the task is exempt. California law does not recognize a hybrid category in which the employee is deemed to be performing an exempt task at the same time he or she is performing a nonexempt task. (Heyen, supra, 216 Cal.App.4th at p. 826, 157 Cal.Rptr.3d 280.)

Martinez, 221 Cal. App. 4th at 1163-64.

Finally, in a stunning, but subtle rebuke of prior decisions on misclassification, the Court identified a new mandate from Brinker, saying:

We have not ignored the substantial case authority, including our own, upholding trial court decisions not to certify class actions for claims similar to those raised here (see, e.g., Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 154 Cal.Rptr.3d 480; Mora v. Big Lots Stores, Inc., supra, 194 Cal.App.4th 496, 124 Cal.Rptr.3d 535; Arenas v. El Torito Restaurants, Inc. (2010) 183 Cal.App.4th 723, 108 Cal.Rptr.3d 15); nor do we express any disagreement with the outcome of those cases. However, we understand from Brinker, supra, 53 Cal.4th 1004, 139 Cal.Rptr.3d 315, 273 P.3d 513, a renewed direction that class-wide relief remains the preferred method of resolving wage and hour claims, even those in which the facts appear to present difficult issues of proof. By refocusing its analysis on the policies and practices of the employer and the effect those policies and practices have on the putative class, as well as narrowing the class if appropriate, the trial court may in fact find class analysis a more efficient and effective means of resolving plaintiffs' overtime claim.

Martinez, 221 Cal. App. 4th at 1165.

At least until Duran is decided, there appears to be a change of direction in the pendulum following Brinker.  I would note that in the last Class Re-Action Podcast, we discussed with our mediator panel whether there was something akin to a market correction to the overly hostile treatment class actions received in recent years.  The panel generally though it was too soon to tell.  It's looking less anecdotal with every decision.

California Supreme Court activity for the week of March 18, 2013

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I overlooked last week's Conference Results from the California Supreme Court until today, but better late than never.  On March 20, 2013, the Court denied review in Bradley v. Networkers International (December 12, 2012).  See earlier post here.  This is a significant result, as the case applies Brinker to a certification analysis in the context of whether workers were misclassified as independent contractors.

Recent California Supreme Court Activity

While I configured and wired a veritable recording studio, the world marched on, with the issuance of interesting appellate opinions here and elsewhere in U.S.  The California Supreme Court has been up to some interesting activity this year as well.  For instance, the recent debpulication of opinion from the Second Appeallate District, Division Eight, that seemed inconsistent with the manner in which Brinker instructed courts to evaluate class issues, at least in the wage & hour field.  And in the last few weeks the California Supreme Court's Conference events included the following item of note:

  • The Court granted review in Ayala v. Antelope Valley Newspapers, Inc. (pub ord. Oct. 17, 2012), previously published at 210 Cal. App. 4th 77.  In Ayala the Court of Appeal partially reversed a trial court order denying class certification.  The wage & hour case stems from the classification of workers as independent contractors.

The grant of review in Ayala raises the question of whether Bradley v. Networkers International LLC, 211 Cal. App. 4th 1129 (2012), as modified (Jan. 8, 2013), might turn on some issue that the Supreme Court intends to resolve in Ayala.

Bradley v. Networkers International LLC reverses denial of class certification after remand following Brinker decision

The Brinker-related news is still flowing today.  While the Supreme Court was busy depublishing decisions that affirmed certification denials purportedly based on Brinker, the Court of Appeal (Fourth Appellate District, Division One) in Bradley v. Networkers International LLC (December 12, 2012) reversed the trial court's decision to deny class certification as to all but one cause of action (off-the-clock work).  The decision of the Court of Appeal follows an extended detour through the California Supreme Court.  The California Supreme Court granted plaintiffs' petition for review, and ordered the first Bradley decision (unpublished) held pending the high court's decision Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012). The court then remanded the first Bradley opinion to the Court "with directions to vacate its decision and to reconsider the cause in light of Brinker . . . ."

The Court took its instructions seriously.  The Court received extensive supplemental briefing on Brinker and other decisions from the parties.  The Court concluded that the trial court erred when it refused to certify every claim.

The Court carefully reviewed Brinker's approach for analyzing class claims based on policies applicable to the class:

In finding that common issues predominated on this rest break issue, the high court emphasized that "[c]laims alleging that a uniform policy consistently applied to a group of employees is in violation of the wage and hour laws are of the sort routinely, and properly, found suitable for class treatment," citing with approval three Court of Appeal decisions: Jaimez v. Daiohs USA, Inc. (2010) 181 Cal.App.4th 1286 (Jaimez); Ghazaryan v. Diva Limousine, Ltd. (2008) 169 Cal.App.4th 1524 (Ghazaryan); and Bufil, supra, 162 Cal.App.4th 1193. (Brinker, supra, 53 Cal.4th at p. 1033.) In each of these decisions, the Court of Appeal held the trial court abused its discretion in denying class certification based on the predominance issue. (Jaimez, supra, at pp. 1299-1307; Ghazaryan, supra, at pp. 1534-1538; Bufil, supra, at pp. 1205-1206.) These courts reasoned that the plaintiffs were challenging a uniform employment policy that allegedly violated California law and thus this violation could be proved (or disproved) through common facts and law. (Jaimez, supra, at pp. 1299-1300; Ghazaryan, supra, at pp. 1536-1538; Bufil, supra, at p. 1206.) The Jaimez and Ghazaryan courts further found that common issues predominated even if the policy did not affect each employee in the same way and damages would need to be proved individually. (See Jaimez, supra, at pp. 1301, 1303-1305; Ghazaryan, supra, at p. 1536.)

Slip op., at 17-18.  (Moment of self-aggrandizement: At this point, I'm feeling pretty good about my work on Ghazaryan.)   The Court continued with a thorough analysis of the clarified standards for meal and rest period claims.  Notably, the Court highlighted the guidance provided by Justice Werdegar on the questions of whether meal period claims are categorically uncertifiable if the defendant raises as an issue the reason for the missed meal period:

Justice Werdegar stated that if an employer's records show no meal period for a given shift, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided, shifting the burden to the employer to show the meal period was waived. (Id. at p. 1053.) Justice Werdegar further stated that "[w]hile individual issues arising from an affirmative defense can in some cases support denial of certification, they pose no per se bar [citations]." (Ibid.)

Slip op., at 20.

Later in the opinion, the Court also concluded that the question of independent contractor status is generally one that turns on common issues:

Under both the Borello and Martinez standards, the evidence relevant to the factual question whether the class members were employees or independent contractors is common among all class members. Each of the class members signed a standard "Independent Contractor Agreement" that characterized the worker as an independent contractor; each class member was engaged in a similar occupation (skilled labor in installing or servicing cell sites); each class member was required to work full time and to be available on every working day and during assigned "on call" times; each class member was told how to prioritize each day's jobs; each class member received hourly pay, rather than pay by the job; each class member submitted timesheets to Networkers and Networkers' customers for approval; and each class member was required to use a specific set of tools on the job and to obtain those tools from Networkers. Additionally, although Networkers' standard contract stated that the workers had the right to control the manner and means of the work, including that the workers were permitted to subcontract the work, Networkers had specific time and place job requirements that all workers were required to follow, and the workers could not deviate from these rules or delegate the work.

Slip op., at 23.  The Court continued:

Networkers argued below that there would be a need for individualized proof because of differences among the workers pertaining to job titles, skill levels, pay grades, and the specific type of repair or installation work. However, with respect to the issues "likely to be presented" in the litigation (Brinker, supra, 53 Cal.4th at p. 1025), these distinctions are not significant. The fact that some workers engaged in repair work and others engaged in installation work, or that workers had different pay grades or worked for different lengths of times on particular days, is not central to the issue whether the workers here were employees or independent contractors under the Borello or Martinez tests. (See Martinez, supra, 49 Cal.4th at p. 76; Borello, supra, 48 Cal.3d at pp. 350-351.) Under the analysis, the focus is not on the particular task performed by the employee, but the global nature of the relationship between the worker and the hirer, and whether the hirer or the worker had the right to control the work. The undisputed evidence showed Networkers had consistent companywide policies applicable to all employees regarding work scheduling, payments, and work requirements. Whether those policies created an employer-employee relationship, as opposed to an independent contractor relationship, is not before us. The critical fact is that the evidence likely to be relied upon by the parties would be largely uniform throughout the class.

Slip op., at 24-25.  Unequivocal.  Seems like that IC pendulum is swinging back towards a presumption that IC classification is customarily a question suitable for certification.

The Court then returned to the specific claims in the case before it, applying Brinker's standards to the claims and trial court record.  Rather than wade through that discussion, I will offer this observation.  The employer chose to classify installers and repair techs as independent contractors.  When it made that choice, it also chose not to provide meal periods and authorize rest breaks.  It had no policy for them.  Based on Brinker, the Court concluded that this arrangement raised common questions and let the employer live with the consequences of its choice.

And, while the Court distinguished Lamps Plus and Chipotle, it need not have worried about them; they were depublished today.

Common law test for employment governs claim by "licensed agent" challenging independent contractor classification

Test pilots who push the envelope either go on to walk on the moon and serve as legislators or die in fiery crashes.  Either way, they go out in a big way.  Cases that push the envelope don't have such dramatic finishes, but they often clarify the law, and not necessarily in a good way.  In Arnold v. Mutual of Omaha Insurance Company (December 30, 2011), the Court of Appeal (First Appellate District, Division One) reviewed the trial court's decision to grant summary judgment in favor of defendant on the claim that a non-exclusive insurance agent was improperly classified as an independent contractor.  A key aspect of the Court's decision concerned the issue of whether the trial court applied the correct test for employment to claims alleging failure to reimburse expenses and failure to timely pay wages.

On appeal, the plaintiff argued that the trial court erred in applying the common law test for employment that was enunciated in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989).  Instead, the plaintiff contended that Labor Code section 2750 supplied a statutory definition of employee that is broader than the common law test and controls the definition of employee applicable to section 2802.  I note here, parenthetically, that this argument seems somewhat similar to an discussion of this issue I presented some years ago on this blog.  At least now I don't have to wonder how a court would react to this analysis.

In any event, the Court cited approvingly to Estrada for its conclusion that the Labor Code does not define "employee" for purposes of section 2802:

One reviewing court has recently held the Labor Code does not expressly define “employee” for purposes of Labor Code section 2802, and therefore, the common law test of employment applies to that section. (Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1, 10 (Estrada).) That court went on to cite the “principal” and “additional factors” of the common law test as articulated by the Supreme Court in Borello, supra, 48 Cal.3d 341, and summarized above. (Estrada, supra, at p. 10.)

Slip op., at 6-7.  While the Court noted that Estrada may not have explicitly considered the argument about section 2750, the Court  went on to hold that the common law test must apply, or section 2750 would conflict with the statutes immediately following 2750.

Having settled on the common law test for employment as the correct test, the Court then considered whether the evidence supported the trial court's decision to grant summary judgment.  While it is impossible to know what evidence was submitted, the Court's summary of key evidence suggests that the defendant had the better of it:

The salient evidentiary points established Arnold used her own judgment in determining whom she would solicit for applications for Mutual's products, the time, place, and manner in which she would solicit, and the amount of time she spent soliciting for Mutual's products. Her appointment with Mutual was nonexclusive, and she in fact solicited for other insurance companies during her appointment with Mutual. Her assistant general manager at Mutual's Concord office did not evaluate her performance and did not monitor or supervise her work. Training offered by Mutual was voluntary for agents, except as required for compliance with state law. Agents who chose to use the Concord office were required to pay a fee for their workspace and telephone service. Arnold's minimal performance requirement to avoid automatic termination of her appointment was to submit one application for Mutual's products within each 180-day period. Thus, under the principal test for employment under common law principles, Mutual had no significant right to control the manner and means by which Arnold accomplished the results of the services she performed as one of Mutual's soliciting agents.

Slip op., at 9-10.

It's easy to armchair quarterback, but the factual record described by the Court does not seem like the optimal factual record on which to test this issue.  Then again, when I appealed Alvarez, I'm sure many people said the same thing...  Good thing the Supreme Court bailed me out years after the fact in another case.

In Harris v. Superior Court, the California Supreme Court tries to clarify the administrative exemption as it applies to claims adjusters

(Whether it was successful is another matter entirely.)  After spending the majority of December out sick, I have a good deal of case commentary to cover before I'm current here.  In no particular oder, I begin with the California Supreme Court's opinion in Harris v. Superior Court (December 29, 2011).  Harris stems from four coordinated class action lawsuits contending that claims adjusters employed by Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation were erroneously classified as exempt "administrative" employees.  The trial court certified a class of "all non-management California employees classified as exempt by Liberty Mutual and Golden Eagle who were employed as claims handlers and/or performed claims-handling activities."  Plaintiffs moved for summary adjudication of defendants' affirmative defense that plaintiffs were exempt under IWC wage order No. 4. (Cal. Code Regs., tit. 8, § 11040 (Wage Order 4).) Defendants opposed the motion and moved to decertify the class.  The trial court then decertified a portion of the class, depending upon whether the earlier, less specific version of Wage Order 4, or the later, more detailed version of Wage Order 4, applied to the class members.

On appeal, the Court of Appeal majority concluded that, under the terms of that wage order, plaintiffs could not be considered exempt employees, either before or after the amendment to Wage Order 4.  In a nutshell, the Supreme Court reveresed that ruling to the extent it set a bright line rule, holding, instead:

[I]n resolving whether work qualifies as administrative, courts must consider the particular facts before them and apply the language of the statutes and wage orders at issue. Only if those sources fail to provide adequate guidance, as was the case in Bell II, is it appropriate to reach out to other sources.

Slip op., at 22.

Between that summary of its holidng, and the explanation of the facts and procedural history, is a long and painful journey through the federal regulations incorporated into the current version of Wage Order 4.  In case you were wondering, the regulations incorporated as they existed in 2001 are: 29 C.F.R. Sections 541.201-205, 541.207-208, 541.210, and 541.215.  Next, in parsing the regulations, the Court's analysis turned on assessing when work is "directly related" to management policies or general business operations.  As the Court explained:

Work qualifies as "directly related" if it satisfies two components. First, it must be qualitatively administrative. Second, quantitatively, it must be of substantial importance to the management or operations of the business. Both components must be satisfied before work can be considered "directly related" to management policies or general business operations in order to meet the test of the exemption.

Slip op., at 10.  The Court then explained that the plaintiffs in the trial court below moved for summary adjudication of the affirmative defense of exemption by challenging defendants' ability to show one part of the conjunctive test for "directly related."  The plaintiffs argued that the defendants could not show that the work of the adjusters in that case was administrative in nature, the "qualitative" element.  The Supreme Court focused its analysis on that argument only, explicitly declining to review the record for triable issues on any other element of the exemption defense, including the "quantitative" element of the "directly related" regulatory language.

Turning to the administrative/production worker dichotomy discussed in Bell v. Farmers Ins. Exchange, 87 Cal. App. 4th 805 (2001) (Bell II) and the other Bell decisions, the Court explained that the Bell II decision was predicated on the older Wage Order 4 that lacked the detailed definitions included in the current version.  The Court also noted that the Bell II based its analysis on an undisputed record that the work of the employees at issues was "routine and unimportant."  One key fact from the Bell II analysis noted by the Supreme Court here was the limited settlement authorizations provided to the adjusters in that case.  It is important to note, however, that the Court did not invalidate the administrative/production worker dichotomy.  Rather, it stated that the dichotomy could not stand as a dispostive test in lieu of the Wage Order language.  Instead, the dichotomy is an analytical tool available when the language of the Wage Order and incorporated federal regulations is insufficient to resolve the classification question.

Turning to the current case, the Court criticized the creation of a rigid rule defining any employee carrying out day-to-day business as a production worker.  Instead, the Court cautioned against examining the duties of employees in one business to determine the correct classification of employees in another.  In other words, the administrative exemption is fact-specific test for which the Court offers no guidance in its application.

The Court reversed the Court of Appeal but directed it to re-consider the denial of summary adjudication while applying the correct legal standard.

Disclosure:  Spiro Moss represented one of the named plaintiffs, though other firms handled the appellate activities.