High court opines on certification in misclassification actions

On June 30, the state Supreme Court issued the third in a recent string of employment class action decisions that will have a direct and profound impact on litigation throughout the state. Following on the heels of Duran v. U.S. Bank National Assoc., 59 Cal. 4th 1 (May 29, 2014) (scientifically sound survey results may be used as evidence in the liability phase of a class action), and Iskanian v. CLS Transportation of Los Angeles LLC, 2014 DJDAR 8037 (June 23, 2014) (claims made pursuant to the Private Attorney General Act are not subject to the Federal Arbitration Act), the court held in Ayala v. Antelope Valley Newspapers Inc., 2014 DJDAR 8620 (June 30, 2014), that a class in an employee misclassification action should be certified if there is evidence that the employer has the right to exercise control over an identifiable group of "independent contractors," regardless of whether there are variations in how that employer actually exercises that right.

In Ayala, four newspaper delivery drivers brought a proposed class action alleging that they, and the class they sought to represent, were misclassified as independent contractors. The trial court denied certification of all claims, finding that individual questions overwhelmed any common issues. The Court of Appeal disagreed in part, finding that although denial of certification was appropriate as to some claims (overtime, meal and rest breaks), the trial court decision should be reversed on the remaining claims related to independent contractor versus employee issues.

The sole question before the Supreme Court was whether the matter should proceed as a class action. In upholding the Court of Appeal decision, the court held that the overwhelming issue in the case, whether or not the proposed class was misclassified, should have been certified and that it was clearly subject to common predominant proof.

The parties argued the case under the factors set forth in S.G. Borello & Sons Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), which hinged upon the common law test for whether an employer-employee relationship exists. The Ayala decision did not look to alternative tests since certification is only tested against theory raised by plaintiffs in support of certification. (Justice Goodwin Liu concurred only in the result, not the reasoning, suggesting he thought other tests should have been considered.) Pursuant to Borello, the "principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired." (Citation omitted). Thus, the court held that "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." That right to control becomes the predominant common fact among class members rather than the degree of control actually exercised.

The court went on to frame the predominance issue in a straight forward manner: "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?" Noting that the trial court "lost sight" of that question, the Supreme Court looked for facts supporting certification. Primary among those was the fact that all members of the proposed class signed one of two substantially similar "independent contractor" agreements. The actual degree of control the agreements afforded, however, was not relevant at the certification stage; rather, the determining factor was whether the "degree of control" spelled out in the contracts was uniform among the class members. Whether that degree of control created an employer-employee relationship was left for trial. Further, variations in the manner in which the defendant exercised control over individuals had no place in the certification analysis - the existence of a uniform right to control (or uniform lack of such a right), and not the actual exercise of control, was paramount.

Finally, the court addressed whether an inquiry into the factual underpinnings of a misclassification case would be an appropriate departure from the general prohibition of the same. Here, the court held that "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."

Ayala, Duran and Iskanian have greatly clarified the playing field for class action and representative action litigation in the employment law arena. Together, they comprise an interesting and challenging body of law for practitioners in this field.