Tuesday, July 8, 2014

California Supreme Court Upholds Finding of Trial Court Error In Alleged Independent Contractor Misclassification Case: Ayala v. Antelope Valley Newspapers, Inc.

On June 30, 2014, the California Supreme Court issued its opinion in Ayala v. Antelope Valley Newspapers, Inc., __ Cal. 4th __ (2014) [2014 Cal. LEXIS 4649], which reviewed the Second Court of Appeal’s reversal of a trial court order denying class certification (previously discussed here) on behalf of a class of newspaper home delivery carriers alleging that they had been improperly classified as independent contractors.  At issue was whether the trial court erred in concluding that a standardized form agreement used by the alleged employer (setting forth the terms and conditions of the services to be rendered) failed to provide a sufficient means of adjudicating the “control” test on a class-wide basis due to variations in how the rights expressed therein were exercised by the defendant.  The Supreme Court affirmed the finding of error, holding that “[b]ecause the trial court principally rejected certification based not on differences in Antelope Valley's right to exercise control, but on variations in how that right was exercised, its decision cannot stand.”  See Slip Opinion, at 2.

Central to the Court’s ruling was the Court’s finding that “what matters under the common law [Borello test] is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.”  See Slip Opinion, at 8.  In evaluating whether this issue is amenable to class adjudication, the Court further held that “at the certification stage, the relevant inquiry is not what degree of control Antelope Valley retained over the manner and means of its papers' delivery.  It is, instead, a question one step further removed: Is Antelope Valley's right of control over its carriers, whether great or small, sufficiently uniform to permit classwide assessment? That is, is there a common way to show Antelope Valley possessed essentially the same legal right of control with respect to each of its carriers?”  See id., at 9-10.  “[T]he key question is whether there is evidence a hirer possessed different rights to control with regard to its various hirees, such that individual mini-trials would be required.”  See id., at 13.

As explained by the Court, the trial court’s first error was focusing on whether the control that was “exercised” by the defendant was uniform, as opposed to whether the rights of control which were “retained” by the defendant were uniform: “Whether Antelope Valley varied in how it exercised control does not answer whether there were variations in its underlying right to exercise that control that could not be managed by the trial court.  Likewise, the scope of Antelope Valley's right to control the work does not in itself determine whether that right is amenable to common proof.”  Slip Opinion, at 10.  Again, “[t]he relevant question is whether the scope of the right of control, whatever it might be, is susceptible to classwide proof.”  See id., at 15.  Applying these standards, the Court concluded that “the importance of a form contract [at the certification stage] is not in what it says, but that the degree of control it spells out is uniform across the class. Here, for example, the two form contracts address, similarly for all carriers, the extent of Antelope Valley's control over what is to be delivered, when, and how, as well as Antelope Valley's right to terminate the contract without cause on 30 days' notice.”  See id., at 11.

In addition to the forgoing, the trial court also was deemed to have erred by resolving the “merits” question concerning the scope of the right of control as a basis for denying certification.  As the Court pointed out, this “merits” foray was not only unnecessary to the certification question that was posed, the trial court, by resolving this question, ironically proved that this merits issue could be resolved on a class-wide basis:
Certification of class claims based on the misclassification of common law employees as independent contractors generally does not depend upon deciding the actual scope of a hirer's right of control over its hirees. The relevant question is whether the scope of the right of control, whatever it might be, is susceptible to classwide proof.  Bypassing that question, the trial court instead proceeded to the merits. n5 In so doing, the court made the same mistake others have when deciding whether to certify claims predicated on common law employee status, “focus[ing] too much on the substantive issue of the defendant's right to control its newspaper deliverers, instead of whether that question could be decided using common proof.” (Dalton v. Lee Publications, supra, 270 F.R.D. at p. 564.) Moreover, by purporting to resolve on a classwide basis the scope of Antelope Valley's right to control its carriers, the trial court contradicted its own conclusion, that classwide assessment of Antelope Valley's right to control is infeasible.
Slip Opinion, at 15.

Finally, with regard to the “secondary factors” of the common law Borello test (i.e. whether the contractor is engaged in the same business being contracted out, provides the tools, place of work, etc…), the Court held that a trial court is required to evaluate each factor’s materiality to the case at hand, and then determine (1) if the factor entails individualized inquiry, and (2) if so, whether such individualized inquiry would render adjudication of the element of control unmanageable.  Slip Opinion, at 18.  Again, as “the extent of the hirer's right to control the work is the foremost consideration in assessing whether a common law employer-employee relationship exists” [id., at 7], this analysis is required to ensure the secondary factors do not unnecessarily drive the litigation.  With regard to this component, the trial court was deemed to have engaged in this very type of error by “simply recit[ing] secondary factor variations it found without doing the necessary weighing or considering materiality.”  See id., at 19.

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