This month’s key California employment law cases are two decisions from the Ninth Circuit Court of Appeals.
Dynamex Operations W., Inc. v. Superior Ct., 4 Cal. 5th 903, 232 Cal. Rptr. 3d 1 (2018)
Summary: A worker is properly considered an independent contractor to whom a California wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such 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 for the hiring entity.
Facts: Prior to 2004, defendant Dynamex Operations West classified drivers who performed pickup and delivery work as employees. In 2004, Dynamex adopted a new policy and contractual arrangement under which all drivers were considered independent contractors rather than employees. Two delivery drivers brought a class action on behalf of themselves and similarly situated drivers alleging that Dynamex had misclassified its delivery drivers as independent contractors rather than employees. The drivers claimed that Dynamex’s alleged misclassification of its drivers as independent contractors led to Dynamex’s violation of Industrial Welfare Commission Wage Order No. 9, the applicable state wage order governing the transportation industry, and sections of the California Labor Code, and, as a result, Dynamex had engaged in unfair and unlawful business practices under Business and Professions Code section 17200.
Procedural History: After a trial court order denying class certification was reversed by the California Court of Appeal, the trial court certified a class of Dynamex drivers who, during a pay period, did not employ other drivers and did not do delivery work for other delivery businesses or for the drivers’ personal customers. The trial court’s certification order relied upon the three alternative definitions of “employ” and “employer” set forth in the applicable wage order (discussed in Martinez v. Combs, 49 Cal. 4th 35, 64, 109 Cal. Rptr. 3d 514 (2010)), rejecting Dynamex’s contention that the multifactor standard set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341, 256 Cal. Rptr. 543 (1989), is the only appropriate standard under California law for distinguishing employees and independent contractors. Dynamex then filed a writ proceeding in the court of appeal, maintaining that two of the alternative wage order definitions of “employ” relied upon by the trial court did not apply to the employee or independent contractor issue. The court of appeal rejected Dynamex’s argument, upholding the trial court’s class certification order with respect to all of plaintiffs’ claims based on alleged violations of the wage order. The court also concluded that the Borello standard should be used to determine whether a worker is properly considered an employee or an independent contractor for causes of action which sought reimbursement for business expenses not governed by the wage order but obtainable only under Labor Code section 2802. Dynamex filed a petition for review challenging only the court of appeal’s conclusion that the wage order definitions of “employ” and “employer” are applicable to the question of whether a worker is properly considered an employee or an independent contractor for obligations imposed by an applicable wage order.
Court’s Decision: The California Supreme Court affirmed, holding that the trial court did not err in concluding that the “suffer or permit to work” definition of “employ” contained in the wage order may be relied upon in evaluating whether a worker is an employee or an independent contractor for obligations imposed by the wage order. The wage order’s suffer or permit to work definition must be interpreted broadly to treat as “employees,” and thereby provide the wage order’s protection to, all workers who would ordinarily be viewed as working in the hiring business. At the same time, the suffer or permit to work definition is a term of art that cannot be interpreted literally in a manner that would encompass within the employee category the type of individual workers, like independent plumbers or electricians, who have traditionally been viewed as genuine independent contractors who are working only in their own independent business. Thus, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such 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 for the hiring entity.
Practical Implications: The court’s ruling further fuels an already rapidly-expanding area of litigation, particularly with gig economy businesses that provide flexible on-demand deliveries and work schedules for the convenience of customers and workers. Businesses with independent contractors should reevaluate their classifications and contracts to determine if they are supportable under the court’s ruling.
Rizo v. Yovino, 887 F.3d 453 (9th Cir. 2018)
Summary: Prior salary alone or in combination with other factors cannot justify wage differential under federal Equal Pay Act.
Facts: Plaintiff, a female teacher hired by the Fresno County Office of Education, earned less than her male counterparts. After being hired, she learned of this discrepancy and sued the county for violations of the federal Equal Pay Act (“EPA”). The county moved for summary judgment, arguing that because it utilized prior salaries of its applicants in determining its salary scale, and prior salaries were a gender-neutral factor, there was no violation of the EPA. The district court denied summary judgment, reasoning that using prior salary information necessarily and unavoidably conflicted with the EPA because it virtually ensured the perpetuation of a discriminatory wage disparity between men and women.
Court’s Decision: This Court of Appeals for the Ninth Circuit vacated the denial of summary judgment and remanded, relying on Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982), to find that prior salary alone was a factor other than sex under the EPA. The Ninth Circuit en banc subsequently reversed, finding that prior salary does not fit within the catchall exception of a factor other than sex because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality. While prior salary may bear a rough relationship to legitimate factors other than sex—such as training, education, ability or experience—that relationship is too attenuated to rely upon. Rather, allowing an employer to use prior salary for setting initial wages could (and likely would) perpetuate wage disparities prohibited by the EPA. Rather than use a second-rate surrogate that likely masks continuing inequities, an employer must instead point directly to underlying factors for which prior salary is a rough proxy, at best, if it is to prove its wage differential is justified under the catchall exception. The Ninth Circuit thus overruled its holding in Kouba, finding: (1) a factor other than sex must be one that is job-related, rather than one that effectuates some business policy; (2) it is impermissible to rely on prior salary to set initial wages because it is not job-related and it perpetuates gender-based assumptions about the value of work that the EPA was designed to end; and (3) prior salary cannot be used as the sole factor or one of several factors considered in establishing wages because that is a distinction without a difference.
Practical Implications: This decision is consistent with California’s recent ban on asking applicants about prior salary history. To comply with both, employers should not request or use applicants’ prior salary information as a factor in setting initial wages. Employers should also review compensation guidelines for setting starting wages to ensure that every factor relied upon meets the job-related standard.