California Supreme Court Holds Independent Contractor Misclassification Claims Can Be Determined by Common Proof – But Only in Certain Circumstances

From Littler Mendelson — [note: this is the best article I’ve seen on the Ayala v. Antelope Valley Newspapers, Inc. case.]

“California Businesses Retaining Contractors Can Reduce Their Exposure

For other class actions in the pipeline or yet to be brought, plaintiffs’ counsel no doubt will argue that the California Supreme Court decision supports class certification, at least when there is a standard form contract that uniformly specifies that the business has the right to control the workers’ manner and means of performing the work. But the plaintiff still will have to prove that the standard contract shows a common illegal policy in order to certify a class on that basis.15 Contracts that do not retain the right to control the worker will not evidence the requisite illegal common practice that is the basis for certifying a class. The workers instead will have to show a common illegal systematic practice, which is more difficult to do.

Businesses can reduce the risk of class certification by reviewing their contracts with their contractors and eliminating provisions that allow the business the right to control their workers’ methods and means of accomplishing the tasks at hand or otherwise support an employment relationship…

To reduce risks of liability businesses should also review contracts with an eye towards the other factors that are considered in evaluating the independent contractor status. For instance, businesses should evaluate the risk of deducting any expenses from payments made to contractors. Unlike employees, independent contractors are generally expected to supply the tools, instrumentalities and the place of work. Many businesses charge contractors for the use of these items. But if those contractors are found to have been willfully misclassified “employees,” then California law imposes penalties for charging those persons a fee, or making “any deduction from compensation for any purpose,” such as to compensate for “goods, materials, space rental, services, government licenses, repairs, equipment maintenance, or fines arising from the individual’s employment….” These penalties are in addition to the potential liability for reasonable and necessary expenses themselves, if the worker was misclassified, under Labor Code section 2802.

In addition, businesses using independent contractors should consider auditing the actual practices in the field for utilizing these workers, even when the contract supports the classification. While the contract terms may assist in avoiding class certification, the entity may not be immunized from liability by a contract if the conditions “on the ground” reflect an employment relationship.”

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