Independent Contractors vs. Employees: The Dynamex Case

Over the past twenty years, labor law in California has become increasingly worker-friendly. In response, many businesses have adjusted by reclassifying workers as independent contractors, as opposed to employees. However, the California Supreme Court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles reexamined and ultimately rejected the existing judicial standard for distinguishing contractors from employees. The Court introduced a new “ABC” test.

The new standard applies explicitly to claims that arise under wage orders issued by California’s Industrial Welfare Commission. The standard provides requirements for wages, hours and working conditions in various industries. It presumes workers to be employees and places the burden of showing otherwise on the employers. Employees have heavily regulated working conditions, hours, and wages. An employee classification makes the employer responsible for paying payroll taxes, unemployment insurance taxes and social security taxes, as well as social security, and worker’s compensation. Independent contractors don’t receive any of these benefits. The difference to a business’s bottom line can be stark, and misclassifications will likely result in heavy penalties.

The New Test

Under the newly adopted ABC test, a worker is deemed to be an employee for wage order purposes unless the employer shows:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Applying the Test: A Thought Experiment

Imagine a convenience store where the owner has hired a cashier to work the register and a plumber to fix pipes. Now let’s put each employee through the ABC test:

(A) That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact

The cashier answers directly to the owner in all facets of his job. The owner tells him how much he makes, when to arrive, and how he wants things done. The plumber, in contrast, has been hired to complete a task at the rate he charges. The owner doesn’t tell him how to do his work, the plumber exercises his own judgment in the performance of his task. Under the Dynamex test’s A-Prong this would indicate the cashier is an employee, while the plumber is a contractor. But all three prongs of the test must be satisfied in order for the standard to be reached. It’s still possible the plumber could be an employee. Let’s keep going….

(B) That the worker performs work that is outside the usual course of the hiring entity’s business

The usual course of business at a convenience store is to sell merchandise and that’s precisely what a cashier does. So again, the cashier is easily an employee under this prong. The plumber, on the other hand, fixes pipes, which has nothing to do with the store’s normal business. Once again, the plumber is looking like an independent contractor. But there’s still…

(C) That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed

This prong is simply asking whether the person doing the plumbing also independently engaged in the plumbing business? If the pipes at the store break and the owner brings in a plumber to fix them, that person is an independent contractor under this prong.

This example is very basic, but its purpose is merely to trace the shape of the Court’s new analysis of the relationship between worker and employer.

Already Changing Things

Dynamex is already starting to have reverberations in the courts. For example, Rushton Halbert vs. PRN Medical and Surgical Coverage LLC, a January 2019 decision made by Judge Michael P. Linfield of the Los Angeles Superior Court. The case hinged on whether the plaintiff, a physician’s assistant, was an employee or an independent contractor. Despite an earlier tentative decision that the defendant was an independent contractor, the judge abruptly reversed course and declared the defendant an employee, citing Dynamex.

Applying the test, the Court found that prong A wasn’t satisfied because the defendant clearly set plaintiff’s hours and wages. Prong B wasn’t met because the defendant’s business was about placing physician’s assistants in hospitals, precisely the activity the defendant was engaged in. Finally, defendant failed on prong C because, among other things, they had not provided any evidence plaintiff “had business cards, business licenses, business phones, or business locations” or had “received income from any party other than the hiring entity.”

Prior to Dynamex, the Court was going to go the other way with this decision. It’s just one example of how much is already changing.

Subsequent Opinion

Although there’s still much to be determined about when, and to whom, the ABC test applies, the Dynamex decision is starting to be unpacked by the lower courts. Notably, the California Court of Appeal recently ruled in Garcia v. Border Transportation Group, LLC that it doesn’t apply to cases not arising under a wage order. In such cases, the pre-Dynamex standard, known as the Borello Test, still applies.

Key Takeaway

The Dynamex decision will drastically remake the landscape for independent contractors in the California labor market. Businesses that rely heavily on independent contractors are going to have their work cut out for them in wage order cases (and whatever other disputes the courts eventually decide this standard applies in) and should seek qualified legal advice on how the Dynamex decision will affect their business.

California is Getting Firey: A Look at Some Local Court Decisions Arising out of the California Wildfires

The state of California has always suffered from wildfires. However, the scope of the fires in November of 2018 was historical. They destroyed nearly 1.9 million acres of land, caused over $3.5 billion in damages, and cost 104 people their lives. Fires at this scale inevitably lead to a flood of litigation over the amount of money due to private property owners by their insurance companies. However, convincing a court your insurance company owes you more than you were insured for can be tricky.

With experts predicting that climate change in California will only increase the frequency and severity of wildfires, it felt like the right time to look at a sampling of local court decisions in the Trellis database that show off different approaches plaintiffs took to this problem, and where they came up short.

Andrew v. State Farm General Insurance Company, Judge René Auguste Chouteau, Sonoma County
In an action arising out of the October 2017 wildfires in Sonoma County, Plaintiffs, whose home and property were completely destroyed, alleged that the Defendants failed to properly calculate the replacement costs of the buildings in accordance with statutory law. Plaintiffs relied on these calculations, leaving them financially unable to rebuild after the fire. Defendants demurred to an allegation of intentional misrepresentation on the ground the Plaintiffs had failed to identify which specific representations were fraudulent. Judge Chouteau sustained the demurrer (with leave to amend), stating that the Plaintiffs’ general statements about how the alleged misrepresentations occurred lacked the required specificity. The takeaway here is that a Plaintiff must directly and specifically identify the fraud in order to support a claim of intentional misrepresentation.

Alvarez, JR v. United Services Automobile Association, Judge Arthur A. Wick, Sonoma County
In an action arising out of the Sonoma County Fires of October 2017, Plaintiffs alleged Defendant had underinsured many of their policyholders by using valuation software that systematically underestimated the replacement cost of those policyholders’ homes. Defendant demurred to Plaintiff’s claims of fraud (false promise), negligent misrepresentation, negligence, and reformation, on the grounds that they were barred by the “Economic Loss Rule” which precludes recovery in tort for purely economic loss due to disappointed expectations, unless a plaintiff can demonstrate harm above and beyond a broken contractual promise. Judge Wick agreed, citing authority for the proposition that an omission to perform a contract obligation is never a tort unless that omission is also an omission of a legal duty. Holding that Plaintiffs had failed to allege facts establishing the Defendant owed them a duty of care sounding in tort, the demurrer was sustained. This case is a reminder that the Economic Loss Rule presents a high bar to any Plaintiff of this type attempting to prevail via tort, rather than contract law.

Bivin v. United Services Automobile Association, Judge Arthur A. Wick, Sonoma County:
In another case arising out of the Sonoma County fires of 2017, the Plaintiff alleged that their insurance company drastically underestimated the cost of rebuilding their homes. Despite the Defendant affirmatively undertaking the duty of calculating policy limits sufficient to cover those costs, and representing that it could accurately do so, the amount paid came up short. Plaintiff demurred to the eight causes of action, among them, an action for breach of implied covenant of good faith and fair dealing. Judge Wick (the same judge as from the Alvarez case mentioned above) sustained the demurrer on the ground that the Plaintiff’s allegation that the policy was insufficient to cover the loss was not the same as alleging benefits actually due under terms of the policy were withheld. As it can never be unreasonable for a Defendant to pay a contracted amount, there could be no breach of implied covenant of good faith and fair dealing. Interestingly, the Defendant also demurred to a claim of fraud, which was sustained, as in the Andrew case mentioned above, for a failure to identify the fraudulent misrepresentations specifically enough.

Key Takeaways

Property Owners

Judging from a sampling of the vast array of claims that resulted from fire damage, it is probably worthwhile to spend the extra time and resources to make sure your insurance coverage against wildfire damage is adequate.

Insurance & Bad Faith Attorneys

Keep in mind the bar to recovering in tort is very high. General misrepresentations do not generally rise to the level of fraud under contract law and a breach of the implied covenant of good faith and fair dealing requires some unreasonable behavior on the part of the Plaintiff. At the end of the day, courts aren’t itching to second guess insurance companies after the fact of a disaster. So do your research, know your judges, and make your pleadings specific to avoid demurrer!

Legal Analytics: California’s Law Enforcement Officer Misconduct Litigation

Over the past ten years, we’ve been bombarded with news of law enforcement officer and police officer misconduct.  And it seems, it may be getting worse.  Headlines related to excessive force, sexual harassment, and even wrongful death perpetrated by law enforcement officers seem to fill our headlines on a near daily basis.  In an attempt to counteract this trend and bring greater transparency to this issue, California passed a law giving greater access to reports of officer misconduct which went into effect in early January 2019.

We all remember it, on March 2, 1991, four police officers viciously attacked Rodney King. While the officers kicked him and hit him with batons, the abuse of power was caught on video by bystanders. Despite this documentary evidence, the 4 officers involved in the beating were found not-guilty, demonstrating the cognitive dissonance between violent abuses of power, and our understanding of the criminal justice system. The absence of appropriate safeguards and the lack of retribution for the officers involved exposed a societal inability to process what we saw in the highly publicized video.

Nearly 28 years after the Rodney King incident, we regularly see video of officer misconduct. Proliferation of mobile phones containing high end camera and video software have inundated us with evidence. Even more recently, officers wearing “body cams” record the experience from their point of view. Public viewing of use of force has drastically increased as a result of video, body cams and related technology.

Until the beginning of this year however, the public had no right to view disciplinary records of officers accused of wrongdoing. Only in litigation, through a Pitchess motion, would the public discover an officers’ history of misconduct. As a result of this limited access, the public would have no way to confirm whether a specific accusation was the first time a specific officer had been reported, or whether this officer had a long history of similar instances of misconduct.

All of this changed when SB 1421 went into effect. It requires California law enforcement agencies to produce records of officer misconduct. SB 1421 amended Penal Code section 832.7 “to allow disclosure of records related to officer use of force or confirmed instances of officer sexual assault or dishonesty via a Public Records Act request.”

Naturally, in line with the effective date of this new law, litigation abounds. Officer unions and agencies have filed restraining orders and lawsuits to determine if SB 1421 has retroactive application. The California Supreme Court has already been asked to weigh in. For now, they’ve declined to provide guidance and refused to enjoin enforcement of the revised law. As such, officer disciplinary records are currently discoverable. It will take some time to see how matters move through the lower courts to understand how this retroactivity issue, will be resolved.

What does “abuse of power” litigation have to do with legal analytics?

The passing of SB 1421 will certainly have an impact on litigation against law enforcement agencies. Accusations  of excessive force, sexual assault, and dishonesty now have greater transparency and records which may make these claims easier to prove are now accessible. Making such records more easily discoverable improves public accountability and transparency — a necessity if trust in our justice system is to be rebuilt. Where police personnel have too many excessive force complaints or accusations of dishonesty, an officer may find themselves looking for alternate forms of employment as the department now faces greater exposure related to these claims.

Litigation analytics and related trend data will not only lead to greater ‘abuse of power’ litigation claims, but will also assist  with the successful prosecution of such cases. For example, those who bring excessive force or wrongful death actions now have the ability to review all litigation surrounding an officer. In the last 2 years, more than 24 matters  involving “officer misconduct” have been filed in Los Angeles County alone.

If you’re filing a Pitchess motion in CA state court, it may be helpful to see the 42 other instances where this issue has been addressed in Los Angeles County and how each of the judges have ruled on the related motions. Understanding your judge’s tendencies, rational and preferred case law related to Pitchess motions will help you better craft your argument. For instance, Hon. Dennis J. Landin had this issue arise in at least 6 different matters last year.

Combining SB 1421 with legal analytics will drastically improve a lawyer’s performance in cases of officer misconduct… which may in turn start to change some officer and police department behavior. There is no doubt that SB 1421 is going to open the floods gates of officer discipline information. Legal analytics will be necessary to assist in curating the data for relevant litigation and bringing forth necessary societal change.

 

How to organize a “Motion to Compel Arbitration” in CA Superior Court

How did you write your last “motion to compel arbitration”? Trellis analyzed tentative rulings from judges across California and we found that judges prefer this outline when writing the motion….

I. Intro

II. Statement of Facts

III. Legal Analysis

     a. Applicability of FAA

     b. Agreement to Arbitrate

     c. Agreement Not Unconscionable

          1. NOT Procedurally Unconscionable

          2. NOT Substantive Unconscionable

     d. Class Arbitration

     e. PAGA

     f. Matter should be stayed

IV. Conclusion

Our CEO, Nicole Clark, used Trellis to write better motions while she was an attorney at Newmeyer & Dillion. She won every motion for two years.

Trellis makes over a decade of California Superior Court records searchable for the first time. Instead of researching a matter in the abstract, see what your judge actually thinks.