The Ninth Circuit recently reviewed a district court’s handling of a class action lawsuit involving allegations of misclassification of employment. Bowerman v Field Asset Services, Inc.. is instructive for at least two reasons: it provides guidance on how corporate defendants in employment misclassification class actions can defend themselves, and discusses in more detail the various tests that trial courts can use to determine liability under such claims – Dynamex‘s so-called ABC test or its predecessor, the multifactor test Borello test.
Fred and Julia Bowerman led a class of independent contractors who performed work in California for defendant Field Asset Services, Inc. (FAS). FAS is in the business of “pre-seizure asset preservation services”, but does not perform the work itself. Instead, it engages the services of independent contractors or third-party “vendors,” some of which are sole proprietorships and others that are corporations with their own employees.
In 2013, Bowerman sued FAS claiming that FAS misclassified him and his fellow band members as independent contractors rather than employees. Four years later, in March 2017, the U.S. District Court for the Northern District of California certified the group, granted the plaintiffs partial summary judgment on liability, and left damages for the lawsuit. In in determining whether Bowerman was an independent contractor or employee, the district court applied the common law test set out in SG Borello & Sons, Inc. v. Indus Department. Reports. The Borello The test focuses on the degree of control the alleged employer has over the worker, as well as eight secondary factors, including whether:
- The work involves a separate occupation or business;
- The worker performs the tasks in question with or without supervision;
- There is a higher skill level required;
- The presumed employer or the worker provides the instruments and the place of work;
- The work requires a more or less long duration;
- The mode of payment is determined by the work or the time spent by the worker;
- The work is part of the regular activities of the presumed employer; and
- The parties consider that there is an employer-employee relationship.
To apply Borello, the district court determined that an employment relationship existed between FAS and its vendors, as FAS retained control over such things as vendor billing, ratings, and discipline over their work. The district court then held a jury trial to rule on damages for Fred Bowerman and 10 other members of the class. However, the lawsuit resulted in no determinable measure of damages due to a lack of records and any common method for determining the overtime hours the band members allegedly worked.
FAS offered to decertify the class. The district court denied the motion, but acknowledged that determining damages would be “much more complicated” than previously thought. In July 2018, the FAS appealed.
Prior to the FAS appeal, the California Supreme Court ruled Dynamex Operations West, Inc. v. Supreme Court. As we have written on other occasions (see here and here), Dynamex prevents the application of Borello in certain circumstances and instead created a different test for determining the existence of an employment relationship, the ABC test, which presumes that a worker is an employee unless the alleged employer can satisfy everything three of the following factors:
- The worker is free from any control over the performance of the work, both in contract and in fact;
- The work in question is not part of the normal course of business of the alleged employer; and
- The worker exercises a trade or profession of the same nature as the work he performs.
On appeal, FAS argued that the class certification was improper because the plaintiffs failed to meet the predominance requirement of Rule 23(b)(3), requiring the plaintiff to establish liability or damages -FAS interests by common evidence, and the Ninth Circuit agreed. The Court of Appeal held that determining FAS’s liability to any member of the group would require individualized investigations (for example, whether the individual worked enough hours each week to qualify for overtime compensation and whether the individual has incurred expenses that are eligible for reimbursement). In sum, the Court of Appeal held that the class members could not prove that the damages were attributable to the conduct in question and that they also lacked a method of calculating the damages insofar as they existed.
Then the ninth circuit determined which test – DynamexABC test Where Borellomulti-factor test — applied to overtime pay and expense claims. The court explained that the law does not require the universal application of Dynamex. On the contrary, Dynamex only applies to questions originating from a California salary order. Since the plaintiffs’ overtime claims arose out of a wages order, they had to be analyzed under Dynamex. Meanwhile, the class members’ claims for reimbursement of expenses for work on behalf of FAS stemmed from California Labor Code Section 2802, not a wages ordinance. Therefore, the nine-factor test of Borello was the appropriate criteria for expense claims and not Dynamex’s ABC test.
FAS challenged the application of Dynamex in another way too. The FAS argued Dynamex applied only to misclassification claims, not joint employment claims, and the appeals court agreed. Recognizing this important distinction, the court explained that the purpose of by Dynamex The ABC test is intended to address instances where a hiring entity attempts to evade its responsibilities as an employer by categorizing workers as independent contractors. But in joint employment situations — where the worker is an employee of one entity but also claims employee status with another hiring entity — the worker likely has employment protections in place. Thus, the court clarified that because the concerns by Dynamex ABC Test seeks to address are not present in joint employment situations, Dynamex does not control.
Ultimately, the court remanded the case on this issue and instructed the district court to determine which class members were employees of a FAS vendor. The district court would assess these claims as a claim for relief under a theory that FAS was a joint employer. As requested by the Ninth Circuit, Borello would apply to the claims of these plaintiffs and Dynamex would have apply to sole proprietor claims, subject to certain caveats that we explain below.
The Ninth Circuit then considered the District Court’s granting of summary judgment on the issue of liability. The appeals court overturned the district court’s granting of summary judgment on FAS’s liability for the expense claims. The court held a jury applying the Borello Factors could have determined that FAS’s methodology for prescribing instructions and evaluating work was simply a means to achieve desired results – not the means used by suppliers to achieve them. In short, the fact that the FAS did not mandate who did the work, when the worker performed it, or even whether the seller has accepted the job offered by FAS while taking into account the control necessary for the existence of an employment relationship. Likewise, the court concluded that Borellothe secondary factors of remained disputed, as the FAS itself admitted in the district court.
In evaluating the overtime claims, the Ninth Circuit applied the ABC test and found that there were genuine issues of material fact regarding Parts A (control) and C (commitment of members of the group in a trade, profession or independent business). With respect to Part B (whether the work performed by the alleged employee is outside the normal course of business of the alleged employer), FAS argued that it did not perform the custodial services, but that he had simply coordinated them. The court rejected this argument, observing that FAS itself advertises the provision of the services at issue and likening this case to one involving Uber’s ride-sharing app and the platform’s drivers. The Court of Appeal therefore upheld the summary judgment on Part B. Thus, the FAS failed all three parts of the ABC test and so on. Dynamex an employment relationship existed for the purposes of the overtime claims.
However, the court also noted that the California legislature had recently enacted a business-to-business exception to the ABC test. Under this exception, the ABC test does not apply to genuine contractual relationships between a putative employer and a separate entity providing services. In such cases, a trial court must request Borello to job analysis. Based on this, the court remanded the case to determine whether the exception applied to any of the claims at issue.
Bowerman serves as a guide on how franchise systems with sole proprietors and corporations with their own employees can defend against claims of misclassification of employment. It also further clarifies the ongoing interaction between the two prevailing tests – Bowerman and Dynamex – which California courts will use in similar cases. As more jurisdictions adopt the ABC test, cases like Bowerman could also apply to other parts of the country.
This article was written with the help of summer associate Zach Zahn.
