Managing independent contractor relationships requires a delicate balance, perhaps best described (unknowingly, of course) by the band .38 Special in the song "Hold On Loosely":
Just hold on loosely
But don't let go
If you cling too tightly
You're gonna lose control
Maintaining too much control causes the loss of control. And so it goes with companies who use independent contractors.
In Ayala v. Antelope Valley Newspapers, Inc., the California Supreme Court set forth the legal standard for determining whether independent contractor misclassification claims can be brought on a classwide basis, or must be brought separately by each individual. According to the court, the determining factor is whether the company retains the right to exert control over the contractors, regardless of whether the actual control exerted varies from individual to individual.
Put another way, California employers who cling too tightly (or merely retain the right to do so) are gonna lose control. Tight clinging may lead to, among other things, class certification.
In Ayala, four newspaper carriers filed a putative class action against Antelope Valley Newspapers. The carriers alleged that they had been misclassified as independent contractors and should have been considered employees for purposes of overtime, deductions, rest and meal periods, reimbursement of business expenses and other provisions of California law applying to employees. The four named plaintiffs moved for class certification, arguing that they had all signed the same form contract which provided the newspaper with the right to control how they performed their work.
The trial court declined to certify the class due to a lack of predominance. It found that variations among the work performed by the carriers, as well as the availability of rest and meal periods, varied widely and would have to be resolved on an individual basis. The named plaintiffs appealed.
The court of appeal separately analyzed the various claims and held that while overtime and meal and rest period claims were too individualized, the trial court should have certified the remaining claims due to the newspaper's right of control. The California Supreme Court agreed to review that decision.
The test under California law for determining whether an individual independent contractor is misclassified is well settled. This determination depends primarily on the extent to which the hiring party retains the right to control how the work is performed. See S.G. Borello & Sons, Inc. v. Dep't of Industrial Relations, 48 Cal. 3d 341 (1989).
The California Supreme Court ruled that, for purposes of certification, it does not matter how much variation exists in how the company actually exerted control from individual to individual. The misclassification test looks at the right of control, not how it is exercised. Thus, if the carrier had the same right to control the work of all the carriers, then class certification may be appropriate, regardless of whether the actual exercise of that control varied from carrier to carrier.
The Court noted that all of the carriers were made to sign the same independent contractor agreement, which set forth the rights of the parties. The Court suggested, therefore, that the company's right to exert control over any one contractor would likely be the same as its right to exert control over any other contractor. The uniformity in the contract suggested uniformity in the newspaper's retention of its right to control how the work is performed.
The California Supreme Court was careful not to make a determination on the merits, noting that the company's right to control might be significant or might be miniscule. The issue before the Court was not the merits of the claims but whether the merits of those claims should be considered on a classwide basis. It remanded the case to the trial court with instructions to re-analyze the suitability of class certification based on whether the company's right of control varied from individual to individual, not whether their exercise of control varied for each carrier.
While the Court emphasized the right of control, and ultimately certified the case, there is still hope for the employer on remand. Keep in mind that the court of appeal had affirmed the decision not to certify the overtime, rest and meal period claims, which were among the most significant, and that holding was undisturbed. Further, the majority and at least one concurrence stressed the importance of the contract, and assuming it was well-drafted (admittedly a significant assumption), it might very well prove to help the defense. The Court also noted the existence of secondary factors that could weigh against certification (such as the right to terminate at will, the place of work, the requisite skill, etc.) and recognized the potential for findings by the trial court that "would have been sufficient to justify denying class certification." The Court thus left the door open both for the trial court to refuse to certify the case and for a judgment in the employer's favor on the merits.
The bottom line: In deciding whether to grant certification in a class action involving independent contractor issues in California, the court should focus on the right of control, rather than the actual control exerted.
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