Ninth Circuit Decision Highlights Concerns With Independent Contractor Classification

Posted on July 22, 2010 by Noel Tripp

In a decision reiterating important independent contractor issues for employers, the Ninth Circuit Court of Appeals last week reversed a lower court decision holding that certain delivery drivers were properly classified as independent contractors under various provisions of the California Labor Code. Narayan v. EGL, Inc., 2010 U.S. App. LEXIS 14279 (9th Cir. July 13, 2010).

At the trial court level, Judge Ronald M. Whyte of the Northern District of California concluded that the drivers, although residents of California providing delivery services in California, were independent contractors under the laws of Texas, the governing law set forth in the drivers’ “Leased Equipment and Independent Contractor Services” agreement with EGL, a nationwide provider of logistics services.  In a footnote, the court further held that “[t]he result would be no different if California law governed.”

Reversing the decision, the Ninth Circuit observed that ‘[w]hether the Drivers are entitled to those benefits [under the Cal. Lab. Code] depends on whether they are employees of EGL, which in turn depends on the definition that the otherwise governing law--not the parties--gives to the term ‘employee’” (emphasis added). The Circuit Court held that the parties’ selection of Texas law to “govern” the contract applied only to disputes about interpretation of the contract (i.e, Texas contract law), not the application of employment statutes like the California Labor Code. Simply put, the Circuit Court held that the drivers’ claims under the Cal. Labor Code did not “arise” from the contract (i.e., did not call primarily for interpretation of that contract) – the contract was simply relevant evidence relating to their claims of employee status.  Finally, the Court reversed Judge Whyte’s ruling that the drivers were independent contractors (even under California law) because, in the Court’s view, he “did not apply the relevant factors [for IC status] identified by the Supreme Court of California to the facts in this case.”

While the Appellate Court’s failure to recognize the choice of law clause may not be relevant to most employers, the central holding and vital takeaway is very straightforward: independent contractor status is generally narrowly construed and currently under intense scrutiny. Further some aspects of the relevant analysis vary not only from state to state but from statute to statute. Additionally, and critically, the intent of the parties as reflected by the parties’ agreement is often of little importance to an administrative agency’s or court’s analysis, as Narayan clearly demonstrates.

All employers, and especially those with multi-state operations, must focus on the propriety of their organization’s use of contractors.   A more detailed analysis of this issue can be found here.

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California Meal and Rest Period Compliance: Where Are We Now?

Posted on April 29, 2010 by Noel Tripp

As every California employer knows, wage and hour class actions in California are never-ending.  One basis for many of these class actions has been employers' alleged non-compliance with California meal and rest period requirements.  As to meal periods, the two overriding issues have been whether an employer is required to ensure non-exempt employees take their meal period or just offer such an opportunity and whether such meal period must be taken prior to completion of 5 hours of work.   This issue has significant financial ramifications to California employers as California law imposes a penalty of 1 hour of wages for each day an employee misses a meal period and for each day an employee misses a rest period.  The California Supreme Court is currently reviewing these issues in two consolidated cases and is expected to schedule oral argument in the coming months.  Once oral argument before the court occurs and the court hands down its decision within 90 days thereafter as required by California law, we hope there will be some clarity on these issues.

Robert Pattison, Managing Partner of Jackson Lewis' San Francisco office, has prepared a white paper discussing these issues in detail.  This white paper, which includes a statutory analysis and a discussion of the shifting positions of the State Labor Commissioner, can be accessed at this link. Most importantly, Jackson Lewis suggests that to ensure compliance pending this decision, California employers continue to ensure that no non-exempt employees works more than 5 hours without taking a meal period.

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California Appellate Court Upholds Trial Court Ruling Denying Class Certification of Misclassification Claim

Posted on April 23, 2010 by Noel Tripp

In an action for unpaid overtime arising out of the alleged misclassification of restaurant managers as exempt, a California Court of Appeal recently held that the trial court properly ruled the action was not suitable for class treatment because common questions of law and fact did not predominate over individualized issues.  Arenas v. El Torito Restaurants, Inc., No. B211301 (Cal. Ct. App. Apr. 8, 2010).  Specifically, the employees failed to demonstrate common proof on the issue of misclassification.  Rather, as the evidence showed that the employees’ job duties differed greatly, the trial court did not abuse its discretion in denying class certification to a group of restaurant managers allegedly misclassified as exempt employees.

Hermilo Arenas and six others (collectively, “Arenas”) were employed as managers at the employers’ three restaurants.  Arenas alleged that he was misclassified as exempt and, among other things, improperly not paid overtime in violation of the California Labor Code.  Arenas asserted that he routinely spent more than half his time performing non-exempt duties (including cooking, preparing drinks, tending bar, waiting and bussing tables, stocking shelves, unloading trucks, cleaning, and dishwashing) and less than half his time on managerial work that required discretion and independent judgment.

Arenas moved to certify a class that included kitchen managers, department managers, and general managers.  The motion was opposed and the defense presented evidence that the managers’ job duties and the time they spent on particular tasks varied from one restaurant to another.  The trial court denied class certification, finding Arenas failed to show common proof on the issue of misclassification.  The court said the case was “replete” with factual issues requiring mini-trials regarding the circumstances of the managers’ job duties.  Arenas appealed, arguing that the trial court incorrectly denied class certification because it found he could not prove the class as a whole was misclassified — an ultimate determination on the case’s merits.  The Court rejected Arenas’ characterization of the trial court’s ruling and held that the trial court did not require Arenas to prove that he would prevail on the merits of his claim. Rather, the trial court properly considered whether the misclassification claim was amenable to class treatment.  Based on the evidence presented of the differences in duties at the various restaurants, the Court found no error with the trial court’s determination. 

This case underscores that the California Court of Appeal will be reluctant to second guess a trial court’s determination regarding whether plaintiffs have satisfied the requirements for a class action.  A more extensive Jackson Lewis analysis of this decision is available here.

 
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