Delivery Drivers are Employees, Not Contractors -- Ruiz v. Affinity Logistics, Inc.

 In Ruiz v. Affinity Logistics Corp., ("Ruiz II"), the Ninth Circuit determined that a class of delivery drivers had been improperly classified as independent contractors.  The decision reversed the lower court's finding of employee status following a bench trial.  

The Defendant had required that its drivers form their own companies and execute contracts designating their relationship as independent contractors.  Nevertheless, the company still controlled every aspect of the drivers' operation from their rates and routes to the "color of their socks."  Based on this extensive record of control the Ninth Circuit had no trouble concluding that they were not bona fide contractors.  But the court's analysis did address several points that may be of interest in other, closer, fact patterns.

First, the Court emphasized that anytime personal services are provided an employment relationship is presumed.  Thus, while not using the precise terminology, a claim of an independent contractor relationship is effectively an affirmative defense.

Second, the Court rejected the argument that the drivers' ability to hire their own "helpers" took them outside of an employment relationship.  In particular, this fact did not support contractor status as "the drivers did not have an unrestricted right to choose these persons which is an important right that would normally inure to a self-employed contractor."  

A service provider can legitimately be an independent contractor if he has real autonomy and the opportunity to make a profit by exercising his own business judgment and discretion.  But Ruiz II illustrates that courts will generally reject any arrangement that functions merely as de facto employment dressed up with the appearance of independence.   

 

 

'Right to Control' and 'At-Will' Termination Are Keys to Employment vs. Independent Contractor Status -- Ayala v. Antelope Valley Newspapers, Inc.

Courts and agencies have traditionally invoked the familiar "multi-factor" common law test to distinguish between an employee and an independent contractor.  The trend over time, however, has been to focus ever more tightly on the single factor of who has "control" over the individual's work.  

In Ayala v. Antelope Valley Newspaper, Inc., the California Supreme Court has now made clear that the issue is even narrower than "control" -- it is the "right to control."   

As the parties and trial court correctly recognized, control over how a result is achieved lies at the heart of the common law test for employment. . . . 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.

Thus, a company objecting that it has no history of micro-managing its workers may find that this argument carries little weight because, "That a hirer chooses not to wield power does not prove it lacks power." 

Rather, the "right" of control will inevitably flow from the rights set forth in the parties' contract.  It is extremely significant how Ayala formulates the litmus test for determining whether a contract creates a right of control.    

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.

(Internal punctuation omitted).  The Supreme Court has thus essentially laid down a bright-line rule that a contractual power to fire at-will creates a corresponding right to control the performance of the work.

The newspaper delivery workers at issue in Ayala all had contracts providing the company with a "right to terminate the contract without cause on 30 days' notice."  The Court did not quite reach the merits.  However, it did reverse the trial court's denial of class certification on the ground that the contract terms might well negate the independent contractor status of the entire class.  This is a pretty strong indication that at-will termination is considered inconsistent with independent contractor status.

  

Using Statistics and Surveys to Prove Class Claims -- Duran v. U.S. Bank, N.A.

Appellate courts produce a steady stream of opinions discussing the criteria for certifying class actions.  But guidance as to how such cases should be actually proven at trial has been conspicuously lacking.   This dearth of authority has been remedied somewhat by Duran v. U.S. Bank, N.A.,, in which the California Supreme Court finally came face-to-face with "that exceedingly rare beast: a wage and hour class action that proceeded through trial to verdict."  

Performing an autopsy on this "rare beast" allowed the Court to explain where the trial court went wrong and how other courts might avoid the same mistakes in future class action trials.   

How Not to Conduct A Trial of Class Claims

The issue in Duran was whether, and to what extent, U.S. Bank had denied overtime to a class of loan officers by classifying them as exempt "outside sales" employees when they primarily performed non-exempt "inside sales" activities.    

The trial court developed its own trial plan in which it heard evidence from a sample of 21 out of 260 class members.  From this sample testimony, the Court found that all of the class members (both testifying and non-testifying) were misclassified.  It then calculated class-wide damages by assuming that the testifying and non-testifying employees worked the same number of overtime hours per week.

The Supreme Court rejected this method of proof as unfair and contrary to the Defendant's due process rights.  In particular, the verdict had to be reversed because:

  • The selected sample of 21 employees were neither statistically representative nor numerous enough to support the court's findings as to the rest of the class.  
  • The Court violated the Defendant's rights by barring its proffered testimony that other class members did, in fact, meet the duties of the "outside sales" defense.  

How to Conduct A Trial of Class Claims 

The Supreme Court was highly critical of the lower court's trial plan.  But it did not rule that the plaintiffs' claims could not be tried on a class-wide basis.  Rather, it explained that the existence of certain individual issues such as the percentage of time spent on exempt duties, or the number of overtime hours worked, are potentially manageable.  

The Supreme Court then articulated the following elements of a viable plan for resolving these individual issues in the context of a class-wide trial.  

  • Class-wide claims must be supported by proof of a common set of facts, not merely a statistical showing.  
  • Once these “issues common to the class have been tried, and assuming some individual issues remain, each plaintiff must still by some means prove up his or her claim, allowing the defendant an opportunity to contest each individual claim on any ground not resolved in the trial of common issues.”
  • However, if "sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and statistical sampling."
  •  "In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable."
  • Moreover, "a class action trial management plan must permit the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.”
  • Yet, "No case, to our knowledge, holds that a defendant has a due process right to litigate an affirmative defense as to each individual class member."

Duran does not attempt to dictate what level of statistical certitude -- i.e., the appropriate "confidence interval" or "margin of error" -- will be appropriate in a particular case.  But it does provide useful guidance in determining when and how expert testimony can be used to make reasonably reliable factual determinations for a large group of individuals.         

 

   

Termination of Mozilla CEO Likely Violated California Law

As has been widely reported, Mozilla (the maker of the Firefox search engine) recently forced its CEO, Brendan Eich, to resign because he donated $1,000 in 2008 to support California's Proposition 8, which would have banned same sex marriage.  (The Proposition was approved by a majority of voters but invalidated by a federal district court).

The termination has generated a hot debate.  Most commentators have framed the issue, however, as how to properly strike a balance between an employee's political free speech and his employer's desire to communicate a particular corporate "culture."  (see e.g., here and here).

What these commentators seem to have overlooked, however, is that the California Labor Code has already resolved this debate.  Under California law it is blatantly illegal to fire an employee because he has donated money to a political campaign.  This rule is clearly set forth in Labor Code sections 1101-1102:

§ 1101. Political activities of employees; prohibition of prevention or control by employer

No employer shall make, adopt, or enforce any rule, regulation, or policy:

(a) Forbidding or preventing employees from engaging or participating in politics or from becoming candidates for public office.

(b) Controlling or directing, or tending to control or direct the political activities or affiliations of employees.

§ 1102. Coercion or influence of political activities of employees

No employer shall coerce or influence or attempt to coerce or influence his employees through or by means of threat of discharge or loss of employment to adopt or follow or refrain from adopting or following any particular course or line of political action or political activity.

Donating money to a political cause is obviously the most core form of political participation.  But employers and employees should also be aware that the California Supreme Court has broadly extended the scope of protected speech and conduct to include all types of advocacy.  Indeed, in Gay Law Students Association v. Pac. Tel. & Tel. Co., the Court specifically held that one's espoused attitudes about homosexuality were a form of protected conduct.

[Plaintiff's] allegations can reasonably be construed as charging that PT&T discriminates in particular against persons who identify themselves as homosexual, who defend homosexuality, or who are identified with activist homosexual organizations. So construed, the allegations charge that PT&T has adopted a “policy . . . tending to control or direct the political activities or affiliations of employees” in violation of section 1101, and has “attempt(ed) to coerce or influence . . . employees . . . to . . . refrain from adopting (a) particular course or line of political . . . activity” in violation of section 1102.

As terminating an employee for "defend[ing] homosexuality" is illegal political discrimination, one would be hard pressed to come up with a principled argument that opposition to same-sex marriage is somehow not also protected.  

Thus, to the extent employers want to follow in Mozilla's footsteps by policing their employees' politics in the interests of "culture," "inclusiveness," or corporate branding, they should be aware that their efforts will violate California law.  

 

 

 

Scholarship Athletes May be "Employees" Under National Labor Relations Act -- Northwestern University and College Athletic Players Association

The National Labor Relations Act ("NLRA") protects the right of "employees" to organize and collectively bargain. In a petition to the National Labor Relations Board the College Athletes Players Association sought a determination that certain student athletes qualified as "employees" who were entitled to organize under the Act. The Board agreed.

The Board found that a "full ride" scholarship amounted to around $61,000 per year in consideration in the form of room, board, tuition, and various expense allowances. In return for this consideration, the scholarship recipient is subjected to a long list of duties, restrictions, and commitments of time and effort. The NLRA applies generally to individuals who meet the common law definition of "employment." This is essentially the same standard of coverage used in most state and federal protective employment legislation -- i.e. "a person who performs services for another under a contract of hire, subject to the other's control or right of control, and in return for payment."  The Board found that the scholarship relationship met this test.  

As the record demonstrates, players receiving scholarships to perform football-related services for the Employer under a contract for hire in return for compensation are subject to the Employer's control and are therefore employees within the meaning of the Act."

The effect of the Northwestern decision is that -- assuming players actually vote to unionize -- colleges will be required to collectively bargain with their players over the terms and conditions of their employment. This would be an odd bargaining relationship. For example, each team is "employed" by a separate college so there would presumably have to be separate bargaining units and elections for each college program. Moreover, given the NCAA's control over most aspects of scholarship and amateur eligibility status it is unclear what would be left to negotiate with the collegiate "employer."

Perhaps more significant in the long run is whether courts may import the same finding that scholarship-athletes are "employees" in the context of other worker protections such as the duty to pay minimum wage, overtime compensation, or to provide workers compensation coverage. However this particular decision plays out it is probably part of a long-run trend that will eventually overthrow the fiction that Division I college football and basketball are "amateur" student activities rather than the multi-billion dollar for-profit business that everyone knows they are.

Fifth Circuit Rules that NLRA Does not Prevent Class Action Waivers -- D.R. Horton v. NLRB

In 2007, the California Supreme Court held that class action waivers by employees were (almost always) unenforceable. This result was upended, however, by the U.S. Supreme Court's decision in AT&T Mobility v. Concepcion, which held that under the Federal Arbitration Act ("FAA") such waivers were (almost always) enforceable, and that the FAA preempted any state rule to the contrary. This set off an "arbitration war" whereby pro and anti class action courts have sought to either apply or distinguish Concepcion in employment cases. One of the most interesting pro-class action decisions came from the National Labor Relations Board, which held that: (a) wage and hour class actions are a non-waivable form of "protected concerted activity" under Section 7 of the National Labor Relations Act ("NLRA"); (b) the FAA does not preempt the later-enacted NLRA; therefore: (c) the FAA cannot be read as allowing waiver of class action rights protected under the NLRA. This reasoning, however, has now been rejected on appeal by the Fifth Circuit in D.R. Horton v. NLRB. The Fifth Circuit was sympathetic to (without quite endorsing), the premise that class action lawsuits are "protected concerted activity" under Section 7 of the NLRA. However, the Court held that the employer's right to require individual arbitrations under the FAA should nevertheless trump an employee's right to engage in concerted action under the NLRB. The Fifth Circuit's reasoning on this point is lengthy but not particularly impressive. The Board's central point was that Section 7 rights are different from other statutory claims because the NLRA's "fundamental precept is the right for employees to act collectively." But the Court never grappled with that point directly. Instead it based its decision on the fact that the NLRB does not specifically refer to arbitration. In effect, the Fifth Circuit is holding that workers may have the substantive right to seek better working conditions - but they can be required to pursue these goals solely on an individual basis. It should be pretty obvious that this is a direct negation of employees' right under Section 7 to engage in mutual aid and support by acting in concert. It's a bit like having a worker sign an agreement that nominally preserves his substantive right to picket, but requires him to stand on the street corner all by himself.

Wal-Mart v. Dukes does not apply to California Wage and Hour Class Actions -- Williams v. Superior Court (Allstate Ins. Co.)

In Wal-Mart v. Dukes, the U.S. Supreme Court rejected a proposed class of 1.5 million women who claimed they were discriminated against in separate hiring and promotion decisions by different managers throughout the nation.  Many defendants (and a few courts) read this federal Title VII decision for the proposition that statistical evidence was somehow an improper method of proof in class actions -- a method which was denigrated by the short-hand term "trial by formula."

The decision of the California Court of Appeal in Williams v. Superior Court (Allstate) makes clear, however, that the analysis of the proposed Title VII class in Dukes has little or no application to California wage and hour claims.   As the Court explained, “We agree with those courts that have found Dukes distinguishable in comparable situations.”

Indeed, the Court's four-page distinguishing analysis of Dukes is extremely thorough. In particular, the Williams Court noted that Dukes was concerned with provisions of federal Rule 23 that do not apply under California Code of Civil Procedure Section 382.  As a result, "the trial court's reliance on Dukes analysis of subpart (b)(2) of Rule 23 – a class action seeking injunctive relief – was thus misplaced because appellant’s class members here were seeking principally, if not exclusively, monetary damages."  

In addition, wage and hour claims normally turn on objective standards regarding the number of hours worked and wages paid.  For class certification purposes such claims are thus fundamentally different from the discrimination claims at issue in Dukes "which depended on proof of the subjective intents of thousands of individual supervisors."

Finally, the Williams Court clarified the phrase "Trial by Formula," explaining that statistical inference is a perfectly valid method of establishing damages, and is no obstacle to certification where a class-wide policy or practice is alleged as the basis for liability.

Trial by Formula is a method of calculating damages. Damage calculations have little, if any, relevance at the certification stage before the trial court and parties have reached the merits of the class claims. At the certification stage, the concern is whether class members have raised a justiciable question applicable to all class members. Although Allstate may have presented evidence that its official policies are lawful, this showing does not end the inquiry.  Here, the question is whether Allstate had a practice of not paying adjusters for off-the-clock time.  The answer to that question will apply to the entire class of adjusters. If the answer to that question is “yes” – which is the answer the trial court initially assumed when it first certified the Off-the-Clock class, and is the answer we must presume in reviewing decertification (Brinker, supra, 53 Cal.4th at p. 1023) – then, in Duke’s phrase, that answer is the “glue” that binds all the class members. If some adjusters had more uncompensated time off the clock than other adjusters, that difference goes to damages.

(Internal punctuation and citations omitted). 

Williams continues the recent post-Brinker trend of finding that class treatment of California wage and hour claims is generally proper so long as the question of liability is tied to an alleged class-wide policy or practice of the employer.  It also clarifies that the U.S. Supreme Court holding in Dukes is no impediment to certification in such a case.

 

 

An Employer's Failure to Affirmatively Authorize Meal and Rest Breaks Is Grounds for Class Certification -- Benton v. Telecom Network Specialists, Inc.

Benton v. Telecom Network Specialists reversed the trial court's decision not to certify a class of employees for purposes of determining whether they had been denied meal and rest breaks.  In doing so, the decision also clarifies the affirmative nature of an employer's legal obligation to provide off-duty breaks. 

Last year's Supreme Court decision in Brinker explained that an employer cannot avoid liability merely by establishing that it has not actively prohibited or prevented breaks.  To the contrary, employers have a legal duty under the Labor Code to affirmatively publish and implement internal policies that expressly authorize and permit employees to take compliant off-duty meal and rest breaks.  An employer who fails to discharge this affirmative duty may be liable. 

Benton continues the recent trend of appellate court decisions (including Bradley v. Networkers Int'l), which have instructed trial courts to follow this aspect of Brinker when evaluating a motion for class certification.  The putative class of security guards in Benton claimed that they could establish class-wide liability based on their employer's lack of a compliant policy.

[T]he plaintiffs' “theory of legal liability” is that TNS violated wage and hour requirements by failing to adopt a policy authorizing and permitting its technicians to take meal or rest break periods. In plaintiffs' view, TNS was obligated to implement procedures ensuring that technicians received notice of their meal and rest period rights and were permitted to exercise those rights. For the purposes of class certification, the question is whether this theory of recovery can be “proved (or disproved) through common facts and law.”

In response, the employer argued that it could avoid liability by establishing that individual employees might nevertheless have had "opportunities" to take compliant breaks when they were not busy even if no company policy specifically authorized them to do so.  The lower court bought this argument, finding that an assessment of the scope of these "opportunities" for each employee would prevent class certification. The appellate court in Benton held that this was error. 

Rather than focusing on whether plaintiffs' theory of liability—that TNS violated wage and hour requirements by failing to adopt a meal and rest period policy—was susceptible to common proof, the court improperly focused on whether individualized inquiry would be required to determine which technicians had missed their meal and rest periods. The written order (as well as statements made at the motion hearing) make clear that the trial court did not believe TNS would be liable upon a determination that its lack of a meal and rest policy violated applicable wage and hour requirements; rather, it concluded that TNS would become liable only upon a showing that a technician had missed breaks as a result of TNS's policies.

[H]owever, Brinker “expressly rejected” this mode of analysis. As succinctly stated in Faulkinbury [v. Superior Court]: “the employer's liability arises by adopting a uniform policy that violates the wage and hour laws. Whether or not the employee was able to take the required break goes to damages, and ‘[t]he fact that individual [employees] may have different damages does not require denial of the class certification motion.'"

Benton therefore reinforces the message that class certification will normally be proper where the predominant issue is the legal sufficiency of the employer's meal and rest break policies, or the lack thereof.     

 

California Minimum Wage Increase has Ripple Effect on Other Laws

Under recently signed legislation (AB 10) the minimum wage in California will increase on July 1, 2014 from $8.00 to $9.00 per hour; and will increase again on January 1, 2016 to $10.00 per hour.

The unusual mid-year implementation of the 2014 increase may catch some businesses by surprise, so employers should mark their calendars and make plans to implement the change. Also, anytime the base minimum wage increases it necessarily has a ripple-effect on other compensation thresholds.  For example:

  • The minimum salary necessary to avoid overtime payments to exempt "white collar" managerial, administrative and professional employees is pegged at twice the minimum wage rate for a 40-hour workweek.  This weekly salary threshold will thus rise to $720 on July 1, 2014, and $800 on January 1, 2016.
  • The "regular rate of pay" for exempt commissioned salespeople is pegged at 1.5 times the minimum wage and will thus increase in 2014 and 2016 to $13.50 and $15.00, respectively. 
  • Unlike federal law, California's minimum wage rate must be separately paid for "each hour worked" rather than as the average of the compensation for all hours worked in a week.  As a result, "piece rate" or performance-based compensation systems must ensure that each category of employee work time is generating sufficient compensation to comply with the new standards.

Under the new rates, California's minimum wage rates will be the highest in the nation.   But stay posted, a high-profile movement is under way to push for a base minimum wage rate of $15.00. 

 

   

Unconscionable Arbitration Agreements are unenforceable under California Law -- Sonic-Calabasas v. Moreno

Sonic-Calabasas A, Inc. v. Moreno, addressed the specific legal issue of whether an employer can require an employee to waive his right to have an administrative hearing before the Labor Commissioner (a so-called "Berman Hearing"), as part of an arbitration agreement.  In the end, the California Supreme Court merely remanded the case back to the trial court to decide whether this result would be "unconscionable" based on all of the surrounding circumstances. 

In Concepcion v. AT&T, the U.S. Supreme Court held that federal law requires arbitration agreements to be enforced "according to their terms" and that state law rules to the contrary are preempted.  But Sonic-Calabasas, pushes back against this federalizing of arbitration contracts by explaining that: (a) the state law doctrine of "unconscionability" may still be used to strike down excessively unfair agreements; (b) California's existing caselaw defining unconscionable and unenforceable arbitration terms is still in effect notwithstanding Concepcion; and (c) California courts should continue to evaluate arbitration agreements under the totality of the facts surrounding their formation and substantive terms to determine if "the overall bargain was unreasonably one-sided." 

Examples of arbitration terms cited by the Court as unconscionable include:

  • An arbitration agreement that "effectively gave the party imposing an adhesive contract the right to choose a biased arbitrator."
  • An equal division of costs that "has the potential in practice of being unreasonably one-sided or burdening an employee's exercise of statutory rights."
  • A  $50,000 threshold for an arbitration appeal that "decidedly favored defendants in employment contract disputes."
  • A clause limiting the recovery of damages.
  • An "obligation to pay [the employer's] attorney fees if [the employer] prevails in the proceeding, without granting [the employee] the right to recoup her own attorney fees if she prevails.”
  • A requirement "to pay $8,000 in administrative fees to initiate the arbitration."

Sonic-Calabasas therefore stands for the proposition that the permissible terms of an arbitration agreement in California have not necessarily changed much in the aftermath of Concepcion.  The legal basis for evaluating these agreements, however, should be grounded in a case-by-case analysis under  principles of "unconcionability" rather than on any "categorical" rules based on public policy.  

The unaddressed "elephant in the room" however is whether an arbitration agreement that requires a waiver of class remedies may be found to be unconscionable and unenforceable.  This issue is still pending before the California Supreme Court.  However, the groundwork laid in Sonic-Calabasas suggests that the court is leaning in that direction.