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The Court of Appeal, Fourth Appellate District, recently issued an opinion clarifying the appropriate test for whether or not a person is an “employee” or an “independent contractor” in the context of a wage order claim.  In Garcia v. Border Transportation Group, LLC, 28 Cal. App. 5th 558 (2018), plaintiff Jesus Garcia (“Garcia”) was a taxi driver for defendant Border Transportation Group (“BTG”). Following some disputes between Garcia and BTG over the taxi lease, Garcia filed suit in 2015 for wage and hour violations occurring between 2010 and 2014.  Garcia’s complaint also included non-wage-order claims for wrongful termination in violation of public policy, failure to pay overtime, and waiting time penalties.  The issue was whether Garcia would be classified as an employee or an independent contractor under California law.

In the trial court, BTG moved for summary judgment, arguing that Garcia was an independent contractor rather than an employee.  The trial court granted summary judgment as to all causes of action (wage order and non-wage-order claims), citing factors such as the taxi lease agreement between Garcia and BTG expressly disclaiming an employer/employee relationship, lack of instruction on operation of the taxi, lack of an employee handbook, that BTG did not dictate Garcia’s rates or take any fares, and that Garcia marketed his taxi business in his own name.  The rule the trial court used to determine whether or not Garcia was an employee was the multi-factor test from S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989).

Garcia appealed.  After the matter had been briefed in the Court of Appeal, the Supreme Court of California issued its ruling in Dynamex Operations West, Inc. v Superior Court, 4 Cal. 5^th 903 (2018).  Dynamex, which dealt with the employee-independent contractor issue, adopted a broad definition of the word “employ” based on Industrial Welfare Commission wage orders (orders regulating hours, wages, working conditions, etc. in certain occupations).  This definition states that “employ” means to “suffer, or permit to work.”  The Dynamex court then decided on a three part “ABC” requirements test, rather than the multifactor Borello approach employed by the trial court in Garcia.  Under the “ABC” test, a worker is presumptively an employee unless all three of the following requirements are met: (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 and in fact; and (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.  Dynamex, 4 Cal. 5^th at 957.  The Dynamex case provided the framework in which Garcia was decided on appeal.

Focusing on “C” from the Dynamex “ABC” test, the Garcia court decided on appeal that there was a triable issue of material fact as to whether or not Garcia was an employee of BTG for his wage order claims.  While analyzing “C,” the Dynamex court stated that the issue is not whether the person could have an independent business or profession, but whether they actually do have that independent business or profession.  Id. at 962, fn. 30.  When “C” was applied to Garcia, no evidence showed Garcia was providing services independently of his lessee relationship with BTG.  This requirement of the “ABC” test was not met, and the case was reversed and remanded for entry of an order denying summary judgment of Garcia’s wage order claims.  The rebuttable presumption in the Dynamex “ABC” test makes classification as an employee more likely than under the Borello test.  In wage order claims, courts now “look beyond labels and evaluate whether workers are truly engaged in a separate business or whether the business is being used by the employer to evade wage, tax, and other obligations.”  Dynamex, 4 Cal. 5th at 958, fn 26.

Perhaps more significant than the court’s ruling on Garcia’s wage order claims was the court’s ruling on Garcia’s non-wage-order claims.  The court upheld summary judgment of these claims and determined that the “ABC” test would not apply.  The Garcia court followed reasoning from the Court of Appeal in Dynamex, stating that the “suffer or permit to work” standard is logically applied to wage order claims.  This is because the wage orders define “employ” in that language and regulate “very basic” working conditions for California employees, thus warranting a broad definition of employment.  As for non-wage-order claims, the Garcia court found no reason to apply the “ABC” test, particularly because Borello remained the rule in the worker’s compensation context.

The Garcia court’s decision to continue to apply the Borello test to non-wage-order claims was a victory for employers.  There is no rebuttable presumption that a worker is an employee under the Borello test, making it favorable to employers that classify workers as independent contractors.

A striking feature of Garcia was the use of two different standards to analyze the issue of whether a worker is an employee or an independent contractor.  It remains to be seen whether this trend will continue, or whether the “ABC” test will be applied to non-wage-order claims in the future.  Employers will be hoping for the former, while workers will be hoping for the latter.

The 9th Circuit decided in Rizo v. Yovino, 2018 U.S. App. LEXIS 8882, that prior salaries are not “factors other than sex” to justify a pay differential between men and women. In Rizo v. Yovino, The Court, en banc, addressed the application of “prior salaries” as applied to the Equal Pay Act. The plaintiff in Rizo was a female who claimed she was paid less than her similarly situated male colleagues. Plaintiff sued under the Equal Pay Act, which prohibits sex-based wage discrimination. The Equal Pay Act allows wage differences in four circumstances: 1) a seniority system; 2) a merit system; 3) a system which measures earnings by quantity or quality of production; or 4) a differential based on any other factor other than sex. Defendant employer had a policy of determining salaries based on the employee’s previous salary. It argued that its policy of relying on prior salaries to determine its employees’ current salaries, was a valid defense because it was based on a factor “other than sex.” The employer moved for summary judgment.

The 9th Circuit’s majority opinion, en banc, with three concurring opinions, affirmed the district court’s denial of summary judgment, holding that prior salaries, either alone or in combination with other factors, cannot be used to justify pay differences between men and women. The Court applied two statutory interpretation cannons—noscitur a sociis, “a word is known by the company it keeps,” and ejusdem generis, interpreting general terms at the end of a list of more specific ones— and determined that prior salary does not fit within the fourth catchall exception of “any other factor other than sex” because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality. The Court also believed that relying on prior salary would perpetuate wage disparities. In doing so, the Court abrogated its previous holding in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982).

While Rizo is well-intentioned, it takes a hardline approach that limits possible defenses for pay differentials. As the concurrences note, sex-based discrimination is wrong, but the majority opinion refuses to acknowledge legitimate and non-discriminatory reasons for different prior salaries, including costs of living differences and the different supply and demand levels for different jobs. Rizo’s application may be limited in California, as AB168 bans employers from asking job applicants about their prior salary. However, this case seems ripe for Supreme Court review as both the 7th and 8th Circuits have taken broader approaches as to what constitutes “factors other than sex.”

The Court of Appeal, First Appellate District, recently issued an opinion clarifying the extent of the duty an employer owes to ensure its employees take their meal breaks. In Serrano v. Aerotek, Inc. (Mar. 9, 2018, No. A149187) ___Cal.App.5th___ [2018 Cal. App. LEXIS 243], the plaintiff Serrano was an employee of defendant Aerotek, Inc., a staffing agency that placed temporary employees with its clients. Aerotek provided its employees with its employee handbook, along with a meal period policy that was compliant with state law. Bay Bread, LLC, a food production company, contracted with Aerotek for staffing. Serrano was sent to temporarily work for Bay Bread. The contract between Aerotek and Bay Bread stated that it was Bay Bread’s responsibility to control, manage, and supervise the work, and that Bay Bread would comply with applicable federal, state, and local laws.

Serrano sued both Aerotek and Bay Bread for various wage and hour violations. Aerotek moved for summary judgment on the grounds that Aerotek satisfied its own duty to provide meal periods. The trial court granted the motion, and the Court of Appeal affirmed, holding that there was no additional duty for Aerotek to police Bay Bread so as to ensure meal periods were taken. The Court also declined to extend vicarious liability to Aerotek, stating that once Aerotek has fulfilled its own duty to provide meal periods, it is not per-se liable for any meal period violation by a co-employer.

As the California Supreme Court noted in Brinker, an employer must provide its employees the opportunity to take an uninterrupted meal break, but is not required to police them. The decision in Aerotek follows this reasoning, suggesting that a little more than merely promulgating a compliant meal period policy, such as training, along with a policy requiring employees to notify the employer if they were not given a meal break, is sufficient to avoid liability.

The Court of Appeal, Second District, recently clarified what constitutes adequate notice to the California Labor and Workforce Development Agency (LWDA) in order to assert a PAGA claim. In Khan v. Dunn-Edwards Corp. (2018) 19 Cal.App.5th 804, plaintiff brought a lawsuit for paystub violations. Pending the litigation, he sent the required notice which stated it was for “my claims against my former employer. . .” The Court of Appeal affirmed summary judgment when it held the plaintiff failed to properly notify the LWDA because the notice referred only to the plaintiff and no other employees. The Court reasoned that the notice was inadequate because the LWDA may have chosen not to dedicate resources to investigate what appeared to be an individual violation.

The Court further determined that the plaintiff could not proceed with the PAGA claim on his own behalf because PAGA can only be brought as a representative action, as the plaintiff’s other individual claims had been dismissed. Khan also raises the question of what specificity is ultimately required in the notice letter to the LWDA, opening the door for another point of attack for the defendant. Clearly, reference to the plaintiff’s own claims, and nothing more, is insufficient.

Coming out of the California Court of Appeal, Fourth Appellate District, Division Two, the Court of Appeal determined in Bustos v. Global P.E.T., Inc. (Dec. 22, 2017, No. E065869) 2017 Cal. App. LEXIS 1168, that the trial court appropriately exercised its discretion when it denied the plaintiff’s request for attorney fees even though the jury found on a special verdict that discrimination was a substantial motivating factor for his termination, but also returned a verdict for the defense on all claims.

Despite not prevailing on any of his claims, the plaintiff still sought $454,857.90 in attorney fees. Under the California Supreme Court’s ruling in Harris v. City of Santa Monica (2013) 56 Cal.4th 203, the trial court has the discretion to award the plaintiff attorney fees in a California Fair Employment and Housing Act (FEHA) action if there is a showing that discrimination was a substantial motivating factor, even if the discrimination did not “result in compensable injury.”

The Court of Appeal clarified that while the holding in Harris is broad, the trial court has the ultimate discretion as to when it should award plaintiff’s attorney fees when there is a finding of discrimination. Instead of looking merely at the jury’s special verdict form, the trial court should focus on who prevailed “on a practical level,” including monetary or equitable relief, or if the plaintiff realized his or her litigation objectives. Here, the plaintiff obtained no relief, neither monetary nor equitable, and so the trial court’s decision not to award attorney fees was affirmed as within its discretion.

The California Court of Appeal continues to favor class certification in the recent ABM Industries Overtime Cases ___Cal.App.5th___ [2017 Cal. App. LEXIS 1165] coming out of the First District, Division Four, published January 10, 2018. This trend will continue to be costly for businesses to defend class action claims.

In ABM Industries, the Court of Appeal held that the trial court abused its discretion when it excluded plaintiffs’ proposed expert witness. The trial court’s mistake was that it focused on how the proposed expert failed to show he had any formal training or degrees to qualify him to review the vast timekeeping and payroll data at issue in the case. The Court of Appeal focused more on his actual work experience, which included the maintenance and analysis of complex transactions and data, and that he had previously qualified as an expert in two other cases. This is consistent with the case Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, where the California Supreme Court held that a trial court must act as a “gatekeeper” to exclude “clearly invalid and unreliable” expert opinion. But once the expert passes the threshold showing of expertise, i.e. gets past the “gatekeeper”, the actual extent of the expert’s qualifications go to the weight of the evidence, not the admissibility of the expert. Thus, while a lack of formal training or degrees may ultimately affect the expert’s credibility with the fact finder, it does not by itself prevent the admissibility if he demonstrates his expertise with his prior work experience.

The ABM Industries Court went on to hold that the exclusion of the expert ultimately prejudiced the plaintiffs’ class certification motion because without the expert’s extensive data analysis, plaintiffs could not prove that common issues predominated the class. The Court also found that the class was ascertainable because there were reasonable means of identifying potential class members by objective characteristics and common transactional facts.