Articles from October 2014

Lee v. Dynamex Operations: Defining “Employee” in Misclassification Context

The California Court of Appeal ruled that independent contractor delivery drivers who were formerly classified as employees could rely on the California Industrial Welfare Commission’s (IWC) definition of “employee” for claims that fall within the scope of its wage orders. Lee v. Dynamex Operations West, Inc., No. B249546 (2nd Dist. Div. 7 Oct. 15, 2014) (slip op. available here).

The Dynamex plaintiff had filed the lawsuit in April 2005 on behalf of a class of approximately 1,800 drivers, after Dynamex converted the status of its drivers from employee to independent contractor in 2004. The suit alleged that drivers were still performing the same tasks as they had when classified as employees, with no substantive changes to how their work was performed or the degree of control Dynamex exercised, and, therefore, that the reclassification was in violation of California labor law. Slip op. at 2. After the trial court initially denied class certification, a ruling later reversed by the appellate court, the respondent superior court then certified the proposed class in 2011. Following that certification decision, Dynamex unsuccessfully moved to decertify the class twice and then filed a petition a writ of mandate to the court of appeal, arguing that the lower court “had improperly adopted the definition of ‘employee’ found in [IWC] wage orders to ascertain the status of class members . . . and had failed to use the common law test for distinguishing between employees and independent contractors.” Slip op. at 2 (internal citations omitted).

Wage Order No. 9, applicable to the transportation industry, defines “employ” to mean “to engage, suffer, or permit to work,” while an “employer” is defined as any person “who directly or indirectly . . . employs or exercises control over the ages, hours, or working conditions of any person,” the same language reviewed by the California Supreme Court in Martinez v. Combs, 49 Cal.4th 35 (2010). While acknowledging that it was not inappropriate to rely on the common law standard to determine whether an employment relationship exists, the Martinez court embraced the IWC’s employee-centric definition, stating that they could not ignore the IWC’s broad regulatory definition because it would endanger the IWC’s ability to achieve its statutory purposes. The panel held that the plaintiff should rely on the IWC’s definition of “employee” for claims that fall within the ambit of the wage orders, including claims under unfair competition, failure to pay overtime compensation (1194), failure to provide accurate wage statements (226), and some claims for failure to reimburse for business expenses (2802), while claims that are not violations of the wage orders should apply the common law definition of “employee” under S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989). The panel ordered the trial court to reevaluate, in light of Ayala v. Antelope Valley Newspapers, Inc., 59 Cal. 4th 522 (2014), whether class certification was still appropriate for any claims that fell outside of Wage Order No. 9.

Dyanmex is the first case in California to directly state that the much broader Wage Order definitions of “employment” discussed in Martinez (rather than the common law definition under Borello) apply to wage-and-hour claims, so long as the claims fall within the reach of Wage Order No. 9.

Ybarra v. Aimco: Following Iskanian, CA Ct. of Appeal Revives PAGA Action

In Ybarra, the California Court of Appeal reconsidered its previous pre-Iskanian decision to compel arbitration of an apartment complex manager’s Private Attorney General Act (“PAGA”) claims against her employer, Apartment Investment and Management Company (“Aimco”). Ybarra v. Apartment Investment and Management Co., No. B245901 (2nd Dist. Div. 2 Oct. 7, 2014) (slip op. available here). Ultimately, the court of appeal reversed its prior holding and held that the state high court’s ruling in Iskanian meant the plaintiff’s PAGA claims could stay in court.

The plaintiff alleged three claims against her former employer, Aimco: (1) a class claim under Labor Code section 1194 for unpaid overtime and minimum wages; (2) a PAGA claim for various violations of the Labor Code, including, but not limited to, unpaid overtime (sections 510 and 1198), late final pay (201 and 202), and improper wage statements (226(a)); and (3) a claim under Bus. & Prof. Code 17200 for the same alleged violations of the Labor Code. The parties had signed an arbitration agreement that provided that the parties agreed to arbitrate all disputes between them and prohibited either party from bringing class or representative actions. Aimco unsuccessfully tried to remove the case to federal court, while the plaintiff voluntarily dismissed all claims except the PAGA claim. Then, Aimco filed a motion to compel arbitration, but the trial court denied it, finding that Ybarra had demonstrated some procedural unconscionability due to the arbitration agreement’s having been presented as a condition of employment, and had shown substantive unconscionability because the PAGA waiver was unenforceable.

Aimco appealed the trial court’s ruling and the court of appeal reversed. Following the court of appeal’s decision, the plaintiffs filed a petition for review to the California Supreme Court. The high court granted the petition and held the case pending its decision in Iskanian. Following the Iskanian decision, the high court sent the case back to the court of appeal to decide in light of Iskanian.

Citing the holding in Iskanian, the panel stated that it was bound to find that the PAGA waiver in the parties’ arbitration agreement is “unenforceable as a matter of law.” Slip op. at 4. Because she was not bringing the PAGA claims on an individual basis, the court applied the Iskanian exception for PAGA claims, noting, “The dispute here involves the legal question of whether the parties’ arbitration agreement—specifically, its prohibition of representative claims—is enforceable. Iskanian has now answered this question, and the answer is no.” Slip op. at 4 (emphasis added).

Port Drivers Misclassified as Independent Contractors in Taylor v. Shippers Transport Express

At the end of September, U.S. District Court Judge Beverly Reid O’Connell held that truck drivers who move cargo containers to and from California port facilities for STE, a trucking and logistics company, are “employees” who can pursue wage-and-hour claims under state law, and are not independent contractors. Taylor v. Shippers Transp. Express, Inc., No. 2:13-cv-02092 (C.D. Cal. Sept. 30, 2014) (slip op. available here).

The defendants initially contended that the plaintiffs’ claims under the Labor Code were preempted by the Federal Aviation Administration Authorization Act (“FAAAA”), but the Ninth Circuit recently rejected this argument in Dilts v. Penske Logistics, LLC, No. 12-55705 (9th Cir. Sept. 8, 2014) and the Taylor court denied the defendant’s motion for summary judgment accordingly. The court granted plaintiffs’ motion for partial summary judgment, finding that STE’s ability to terminate drivers on short notice and its control over their daily work strongly indicated that the drivers were employees rather than independent contractors. A certified class of 300 former and current drivers alleged that drivers who leased trucks from STE were misclassified as independent contractors, and were thus denied minimum wage, business expense reimbursements, and itemized wage statements. The principal test of an employment relationship developed by the California Supreme Court turns on “[w]hether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Slip op. at 23 (citing S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341, 350 (1989)). Citing Borello’s secondary indicia of employment, the court also found that “strong evidence in support of an employment relationship is the right to discharge at will, without cause,” a factor which was present here. Id.

For example, under the leases, STE “effectively retains the right to terminate any Driver’s agreement without cause provided it gives the Driver thirty days’ notice,” which showed STE had a right to control and is thus indicative of an employer-employee relationship. Slip op. at 18. Although STE maintained that it did not control drivers (i.e. they could work when they wanted and could choose which loads to accept), the court found that the evidence in the record undermined these claims, citing company policy statements that drivers were required to contact dispatchers daily, that drivers needed to be there “on time when required,” and that STE had the capacity to track driver’s speed via GPS and occasionally sent employees to monitor drivers and verify they were driving safely. Stating that it is the “right to control, and not the actual exercise of control, which drives this analysis,” the court said the drivers had satisfied their burden of establishing they were employees of STE. Slip op. at 22.

Castaneda v. The Ensign Group: Parent Co. May Be Liable for Unlawful Labor Policies at Subsidiaries

A California Court of Appeal issued a published decision holding that a corporate parent could be found liable for its subsidiary’s nonpayment of overtime and minimum wages, where the parent not only wholly owned the subsidiary, but also exercised control over the subsidiary’s operations and employees. Castaneda v. Ensign Group, Inc., No. B249119 (2nd Dist. Div. 6 Sept. 15, 2014) (slip op. available here).

A putative class of certified nursing assistants filed suit against The Ensign Group, a parent company that owns a cluster or portfolio of rehabilitation and nursing care facilities like Cabrillo (where the plaintiff had worked). Ensign contended that because Cabrillo was an independent entity (albeit 100% owned by Ensign) that hired and paid the plaintiff and set his daily work schedule, Ensign could not be considered the plaintiff’s employee, as a matter of law. The trial court agreed, and granting Ensign’s motion for summary judgment and dismissing them from the wage-and-hour action.

The Court of Appeal reversed, ruling that there were triable issues of fact as to whether Ensign was the plaintiff’s employer. Citing the California Supreme Court’s decision in Martinez v. Combs, 49 Cal.4th 35 (2010), and the Court of Appeal decision’s in Guerrero v. Superior Court, 213 Cal.App.4th 912 (2013), the Court explained that an “entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire or supervise’ the employees.” Slip op. at 3 (citing Guerrero). Holding that “[t]he basis of liability is the owner’s failure to perform the duty of seeing to it that the prohibited condition does not exist,” the court found enough evidence that Ensign exercised structural and managerial control over Cabrillo, and thus could have ensured that its subsidiaries’ practices were in compliance with California labor laws. Slip op. at 4 (citing Martinez, italics added). Among other factors, evidence noted by the court included the fact that Ensign was involved in the recruitment and interviewing of Cabrillo employees, Ensign offered and performed essential, centralized services to its affiliates; there was a seamless flow of corporate officers between Ensign and its subsidiaries; Cabrillo employees were required to use Ensign forms and templates; and Ensign controlled the manner in which employees clocked in and out for shifts.

Although a written agreement stated that “the members of the facility staff are Cabrillo’s ‘own’ employees,” the court chose to ignore such labels when evidence of the entities’ actual conduct establishes a different relationship. Slip op. at 5 (internal citations omitted). The court also considered the facts that Ensign’s logo and signs were posted at the Cabrillo facility, employees at the facility believed they were Ensign employees, employees were assigned “” email addresses, and Ensign controlled their employee benefits. The plaintiff had presented facts that the parent had the ability to correct the allegedly unlawful policy in effect at its wholly-owned subsidiary, and thus the Second Appellate District reversed.