County can hire independent contractors who don't meet Dynamex test

THE NEUTRAL CORNER

The California Supreme Court recently issued its long-awaited opinion in Dynamex Operations West, Inc. v. Superior Court, 2018 DJDAR 3856 (April 30, 2018). Almost immediately came the "Chicken Little" headlines. "Contractor Apocalypse" wailed one law firm blog. Another blog accompanied its analysis with a graphic reading "Game Changer." One day after the opinion was issued, another blog asserted: "Employers are still reeling from [the Dynamex decision.]" Then came the webinars.

The point of this column is not to reiterate analysis about this case that clarified (some would say changed) the standard for determining whether workers in California should be classified as employees or independent contractors for purposes of the Industrial Welfare Commission Wage Orders. This case has already been "webinared" to death.

Instead, I thought it important to discuss a case of which many seasoned practitioners -- including me -- seem to be unaware. Holmgren v. County of Los Angeles, 159 Cal. App. 4th 593, issued by the 2nd District Court of Appeal in 2008, effectively renders Dynamex irrelevant for workers in Los Angeles County.

In 1989, the county contracted with two firms to provide telecommunication engineers and support staff for county projects. The firms hired the engineers, billed the county for work performed, and assumed all liability for the engineers' compensation and benefits. Three engineers were hired by the firms and all three performed engineering services for the county between 1989 and 2000. Each acknowledged in writing that he was not a county employee.

In 2000, John Holmgren filed a government tort claim asserting the county had improperly classified him as an independent contractor even though he was a "common law employee." After the county denied the tort claim, Holmgren filed a class action petitioning for a writ of mandate and alleging denial of equal protection, breach of duty to properly designate employees, breach of statutory and third-party beneficiary contracts, and other statutory violations.

The essence of the operative complaint is that Holmgren, although characterized as an independent contractor, "was screened, interviewed, and effectively hired by the County; worked solely on County business; had his salary fixed by the County, was subject to the direct supervision and control of the County; and used County facilities, equipment and supplies to perform County business." Holmgren went on to complaint that his work was the same as that of recognized county employees with whom he worked side by side, "but that he was nevertheless paid lower wages and did not receive the benefits received by the County's 'recognized' workers (including retirement pensions, paid vacation and sick leave, grievance procedures, and step salary increases.)"

The county answered, discovery ensued, and in July 2005, the trial court certified a class defined as all "persons who, currently or in the past, have performed services for the County, where the performance of such services was not of a temporary (less than one year), emergency or recurrent nature, who were not treated as classified County employees ... did not receive retirement or customary employee benefits .. but who worked for the County as part of an integrated work force with classified County employees subject to supervision by County employees."

Based on a stipulated case management plan, stipulated facts and not much additional evidence, the trial court heard and decided three "threshold issues." For reasons beyond the scope of this column, the trial court's rulings on these issues effectively eviscerated plaintiffs' complaint so they stipulated for entry of judgment and judgment was entered for the county from which plaintiffs appeal.

Plaintiffs in this case asserted they were "common law employees." As the appellate court noted, the common law definition is relevant in employment law only if the relevant statutory scheme does not define employment. The Wages Orders contain a definition of "employ": (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship. Martinez v. Combs, 49 Cal. 4th 35, 64 (2010). But, as it turns out so does California law governing the County of Los Angeles in its capacity as a charter county.

The Holmgren court pointed out that a charter adopted by a California county has the same effect as a legislative enactment. This court went on to remind that under the "home rule" doctrine any county charter provision -- specifically including a county's right to provide rules for compensation, tenure and appointment of employees -- trumps conflicting state law. The county's charter, the court, notes "expressly permits the County to either hire its own employees or outsource work to independent contractors. And, the county has "plenary authority to determine who is a civil service employee and who is not." The only way to become a county civil service employee is through compliance with the procedures set forth in the civil service rules. Moreover, the charter also gives the county the right to hire independent contractors as a cost saving measure irrespective of whether the work could be performed by county personnel.

The Holmgren court affirmed the trial court's ruling that the common law definition of employee did not govern holding, in particularly scholarly language: "The fact that Holmgren and the class members performed the same duties [under the same supervisors, on the same facilities, etc. etc.] has nothing to do with the price of tomatoes."

So what, you may ask? Remember, in 2000 Microsoft paid $97 million to settle Vizcaino, a federal lawsuit brought by workers classified as "temporary" who performed exactly the same duties, sitting side-by-side Microsoft employees for years but denied benefits like the stock purchase plan. Because of the holding in Holmgren, many county workers today who would clearly be deemed employees under the Dynamex test -- as they are not free from the county's direction and control, don't perform work outside the usual course of the county's business and do not customarily engage in an independently established business -- are not civil service employees and thus can be compensated less for doing precisely the same job duties under the same working conditions. There will be no Vizcaino settlement for these temporary workers.