Dynamex Operations West, Inc.,v. Superior Court (Lee), 4 Cal. 5th 903 (2018)

In 2010, the California Supreme Court issued the seminal case of Martinez v. Combs.¹ Martinez confirmed that, as defined in the wage order,² the term “employ” had three alternative definitions: “(a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship.”³ The Martinez court clarified the wage order definition of “employer” for the purpose of determining an entity’s status as a joint employer.

Eight years later, the high court has applied the “suffer or permit” prong (i.e., work that was performed that the employer knew or should have known about) to the issue of whether workers should be classified as independent contractors or employees for the purpose of determining whether they are entitled to the wage order’s protections.

In Dynamex, the court held the wage order definition must be interpreted broadly, such that the default classification for all workers who ordinarily would be viewed as “working in the hiring business” is presumptively as employees, and hiring entities as employers. The court adopted the “ABC” test from other jurisdictions in holding that workers would lose their wage order protections and be properly classified as independent contractors only if the hiring entity could establish: “(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 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.”⁴

Dynamex argued that the multi- factor standard from S.G. Borello & Sons, Inc. v. Department of Indus. Relations⁵ (primarily whether the employing entity held the right to control the manner and means by which workers performed their work, as well as nine secondary factors) should control as the only appropriate standard for determining employee or independent contractor status. The company further argued that Martinez was only meant to apply to the issue of joint employment, and not to the definition of employee status. The Dynamex court rejected both of these arguments, opting instead to create a more expansive approach and to place the burden of proof on the hiring entity to establish each of the ABC factors before it could classify its workers as independent contractors. The high court recognized it may be easier and clearer in many cases to determine parts B or C of the analysis rather than having to resolve first how free a worker is from the hirer’s direction and control, and thus empowered trial courts to consider the separate parts of the ABC standard in whichever order they choose.

The Dynamex court further clarified that because California adopted the “suffer or permit” standard before the Fair Labor Standards Act was enacted, the wage order was not intended to embrace the federal economic reality test, as a matter of legislative intent. Rather, the wage order was to provide broader protections. While the court also held that the “suffer or permit” standard was the applicable standard for analyzing employee status, it took no position on whether the first Martinez definition of “employ,” exercising control over the wages, hours or working conditions, applied outside the joint employer context.

The high court provided a background of relevant California judicial decisions to explain how it arrived at its decision, explaining that pre-Borello courts focused on the common law “control of the details” test, which arose in the tort context. The Dynamex court then delved into a lengthy review of Borello’scontributions to the discussion. Borello, which analyzed the employee/independent contractor status of farmworkers for purposes of California’s workers’ compensation statutes, explained that “the concept of ‘employment’ in the [workers’ compensation act] is not inherently limited by common law principles. . . [but] must be construed with particular reference to the ‘history and fundamental purposes’ of the statute. [Citation.]”⁶ The Borello court further noted that “under the Act, the ‘control-of-work-details’ test for determining whether the person rendering service to another is an ‘employee’ or an excluded ‘independent contractor’ must be applied with deference to the purposes of the protective legislation.”⁷ The Dynamex court highlighted that “the [Borello] court at the same time made clear that it was not adopting ‘detailed new standards for examination of the issue,’” and that it was permissible to look at various factors set forth in precedent, the statute’s purpose, and even out-of-state decisions to determine which classification (employee or independent contractor) “best effectuates the underlying legislative intent and objective of the statutory scheme at issue.”⁸ The Dynamex court also examined the Martinez decision and the decision in ⁹in which the trial court had denied class certification because common issues did not predominate when applying the Borello standard. The court noted that in Ayala it resolved the employment status based on common law principles, because that was the legal theory that the plaintiffs had pursued. However, the Ayala court left for another day “the question of what application, if any, the wage order tests for employee status might have to wage and hour claims.”¹⁰ That day has arrived.

Under Federal Equal Pay Act, an Employee’s Prior Salary Does Not Constitute a “Factor Other Than Sex” Upon Which to Base a Wage Differential

Rizo v. Yovino, 887 F.3d 453 (9th Cir. 2018)

Sitting en banc, the United States Court of Appeals for the Ninth Circuit held that prior salary, either alone or even in combination with other factors, cannot justify a wage differential between pay to women and pay to men for the same work, because it maintains historic pay discrimination against women. The opinion was the last for Circuit Judge Stephen Reinhardt, who died just before it was published, and he began as follows:

The Equal Pay Act stands for a principle as simple as it is just: men and women should receive equal pay for equal work regardless of sex. The question before us is also simple: can an employer justify a wage differential between male and female employees by relying on prior salary? Based on the text, history, and purpose of the Equal Pay Act, the answer is clear: No Although the Act has prohibited sex-based wage discrimination for more than fifty years, the financial exploitation of working women embodied by the gender pay gap continues to be an embarrassing reality of our economy [T]o allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.¹¹

Plaintiff was hired as a math consultant by the Fresno County Office of Education. She earned less than her male counterparts due to her prior salary history, despite holding master’s degrees in educational technology and mathematics education. The Ninth Circuit clarified that the defendant’s affirmative defense of a wage disparity at the time of hire,¹² the catchall exception of “any factor other than sex,”¹³ did not include any business reason but rather had to be related to the job itself, such as a prospective employee’s educational background, aptitude, or prior job performance. The court examined precedent in the Eleventh and Second Circuits and concluded that the terms “job-related” and “business-related” could not be used interchangeably to justify invoking the catchall defense, as prior salary did not legitimately reflect a candidate’s experience, performance or ability. Rather, prior salary might reflect prior pay inequity, and allowing that to serve as a legitimate business-related reason for the wage gap would be akin to using “a second- rate surrogate that likely masks continuing inequities.”14 Accordingly, the Ninth Circuit affirmed the district court’s denial of summary judgment on the grounds that the defendant had failed as a matter of law to set forth an affirmative defense.

Class Action Waiver Held Unenforceable, Arbitration Agreement Not Preempted by FAA

Muro v. Cornerstone Staffing Solutions, Inc., 20 Cal. App. 5th 784 (2018)

The Fourth Appellate District upheld the trial court’s denial of the Defendant’s motion to compel arbitration, holding that the trial court properly relied on Garrido v. Air Liquide Indus.l, U.S, LP¹⁵ for the proposition that the arbitration agreement was exempted from the Federal Arbitration Act (FAA). The court of appeal also agreed with the trial court that Gentry v. Superior Court¹⁶ continued to be the relevant standard for evaluating whether the class action waiver provision in the arbitration agreement was enforceable under California law (the trial court applied Gentry and found the waiver to be unenforceable).

Plaintiff was a truck driver for defendant Cornerstone’s client, Team Campbell, both of whom were named to the complaint. (The employment agreement was with Cornerstone.) The parties did not dispute that Cornerstone, which staffed companies in multiple states, was engaged in interstate commerce, or that Plaintiff often transported goods across state lines, and that therefore Plaintiff’s employment contract “evidenc[ed] a transaction involved in commerce” within the meaning of § 2 of the FAA. However, the trial court, relying on LGarrido, properly found that the exception in § 1 of the FAA of “any other class of workers engaged in foreign or interstate commerce,” took Plaintiff’s employment contract out of the FAA’s ambit.¹⁷ The court of appeal rejected Defendant’s argument that the § 1 exception should only apply to transportation workers who are employed by an employer “within the transportation industry,”¹⁸ holding that nothing in the language of the statute so narrowed the exemption. Thus, reasoned the court, California law applied.

The court further held that the proper test for class waiver enforceability in California remains the four-part Gentry analysis: modest size of individual recovery; potential for retaliation against class members; absent class members being ill- informed; and “other real world obstacles” presented by individual arbitration.¹⁹ A trial court has broad discretion to determine whether a class action/arbitration would be a significantly more effective way for employees to vindicate their statutory rights,²⁰ but it is the plaintiff’s burden to make a factual showing of the four Gentry factors.²¹ The court of appeal held that Plaintiff had made that showing with substantial evidence.

Plaintiffs Precluded From Suing Client Company for Same Claims After Settling With Staffing Company

Castillo v. Glenair, Inc., 22 Cal.App. 5th 348 (2018)

Plaintiffs contracted with a temporary staffing company, GCA Services Group, Inc. (GCA) to perform work onsite for GCA’s client company, Glenair, Inc. (Glenair). Plaintiffs sued Glenair in a wage and hour class action. While Glenair was pending, GCA was a defendant in a separate class action (against multiple GCA entities) that resulted in an approved settlement agreement, and the release provision in that agreement prohibited participating class members from asserting the same wage claims that were asserted in Glenair, listing as Released Parties any of the named defendants’ “current or former . . . agents.” Plaintiffs participated in the GCA settlement but were not named plaintiffs in that action, nor was Plaintiffs’ counsel in Glenair class counsel in GCA. Further, Plaintiffs filed Glenair less than a year after the GCA class action was filed and more than a year and a half before GCA settled.

Glenair moved for summary judgment on grounds that Plaintiffs were precluded from asserting their wage claims. Glenair’s motion was based on Plaintiffs’ participation in a class action against GCA involving the same wage claims regarding the same work performed during the same time period. Plaintiffs argued that their Glenair claims were valid because Glenair was not a party to the GCA settlement, nor was it listed as a released party in the agreement, and therefore res judicata did not apply. Glenair countered that Plaintiffs had admitted Glenair was GCA’s agent because they pled in their complaint that Glenair and GCA were agents of each other and joint employers, and thus Glenair was bound by the GCA settlement agreement. In supplemental briefing, Plaintiffs denied Glenair was GCA’s agent and argued there was no evidence that GCA was authorized to represent Glenair in any settlement discussions, and that the language in their complaint was merely boilerplate. Glenair argued that both the complaint and the fact that it collected time records and transmitted them to GCA rendered it GCA’s agent for wage claim purposes. The trial court granted summary judgment.

Relying on Villacres v. ABM Indus., Inc.²², the court of appeal held that res judicata applied because:
(1) there was a final decision on the merits in GCA; (2) it was for the same causes of action; and (3) Glenair and GCA were in privity with each other for the purposes of Plaintiffs’ wage claims, and GCA had been a party to the prior proceeding.²³ The court reasoned that privity in the res judicata context “does not embrace relationships between persons or entities, but rather it deals with a person’s relationship to the subject matter of litigation.”²⁴

The Glenair court further found, relying on agency principles, that Glenair was GCA’s agent for those employees who GCA paid and placed to work at Glenair, and therefore Glenair was a Released Party under the GCA agreement. The appellate court held that GCA’s right to control Glenair regarding the time records, not necessarily the exercise thereof,²⁵ was persuasive, and the fact that GCA relied on Glenair’s collection and transmittal of the time records to properly pay its employees was sufficient to find agency.