California Supreme Court: Newspaper Carriers Can Proceed With Class Action Challenging Independent Contractor Status

On June 30, 2014, the California Supreme Court issued a decision addressing how trial courts should determine the appropriateness of class certification in cases where workers claim they were improperly classified as independent contractors. In a case brought by a group of newspaper carriers claiming that a newspaper company illegally treated them as independent contractors and deprived them of wage and hour protections, the state supreme court held that their employment relationship with the newspaper can be determined on a class-wide basis. Ayala v. Antelope Valley Newspapers, Inc., No. S206874 (June 30, 2014).

The lead plaintiffs worked as newspaper home delivery carriers for Antelope Valley Newspapers, Inc. The carriers had signed an “Independent Contractor Distribution Agreement” with Antelope Valley. In 2008, the four carriers filed a lawsuit and sought to pursue a class action against Antelope Valley. They alleged that the newspaper company had illegally treated them as independent contractors, failed to pay overtime, failed to provide meal and rest breaks, and violated various other provisions of California’s laws.

The trial court denied class certification as to all of the allegations, including the central issue of whether the carriers were independent contractors or employees. The court held that common issues did not predominate because determining the carriers’ employee status would require “heavily individualized inquiries” into Antelope Valley’s control over the carriers’ work. The carriers appealed.

The California Court of Appeal agreed with the trial court that the carriers had not shown that their claims for overtime pay and missed meal and rest periods could be managed on a class-wide basis. However, the Court of Appeal disagreed with and reversed the trial court’s denial of class certification on the issue of whether the carriers had been misclassified as independent contractors. The court noted that the key issue, which could have been addressed on a class-wide basis, was: “how much right does Antelope Valley have to control what its carriers do?” The Court of Appeal ordered the trial court to certify the class on the issues related to employment status. Antelope Valley appealed the decision.

The California Supreme Court agreed with the Court of Appeal. The court held that the critical issue in addressing whether a common law employer-employee relationship exists is “the degree of a hirer’s right to control how the end result is achieved.” The court acknowledged the key difference between actual control and the right to control, stating, “What matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” The court noted that the strongest evidence of the right to control is whether the hirer can discharge the worker without cause. The California Supreme Court held that the trial court will need to address whether Antelope Valley’s right of control over its carriers is “sufficiently uniform” such that the issue of the carriers’ employment status can be addressed on a class basis.

According to Robert R. Roginson, a shareholder in the Los Angeles office of Ogletree Deakins:

“Fortunately, the court recognized in Ayala that the applicable test for determining whether a worker is an employee or independent contractor is the common law test under S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) and its progeny, and the court ‘left for another day’ the question of whether other tests for determining employment apply, such as the standard under the wage orders. On the question of class treatment for misclassification cases, however, the court sought to make certification easier by finding that the trial court’s focus should be on the putative employer’s right to exercise control and not on variations in how that right was exercised.”

Roginson continued, “It remains to be determined how today’s ruling will be reconciled with the court’s ruling in Duran v. U.S. Bank National Association, which was issued in May 2014, where the court recognized the very real and significant role that the manageability at trial of individual issues plays in determining whether a class action is a superior device for resolving wage and hour controversies. In Duran, the state supreme court held that a class action trial management plan must permit the litigation of an employer’s relevant affirmative defenses, even when these defenses turn on individual issues. Under Duran, plaintiffs will still need to show at the class certification stage how they can try a class action case by means of an acceptable trial plan, even if the trial court found that the putative employer had a right to exercise control over the allegedly misclassified workers.”