From JDSupra, Matthew Goodman and Todd Lebowitz discuss a recent decision by the Ninth Circuit Court of Appeals that provides a roadmap for objecting to class action lawsuits alleging misclassification of workers as independent contractors. Matthew and Todd write:
For businesses using independent contractor vendors, misclassification claims are usually well-suited for class certification. A plaintiff’s path toward certifying a class can be relatively smooth when all vendors of a particular kind are treated as contractors. The argument goes that if one is misclassified, all are misclassified.
But a new Ninth Circuit ruling may help businesses change the path toward class certification into a dead-end road.
In Bowerman v. Field Asset Services, Inc., No. 18-6303(9th Cir. 2022), the Ninth Circuit reversed class certification of 156 property preservation vendors, ruling that the “predominance” requirement for a Rule 23 class was not satisfied. The court’s reasons provide a helpful roadmap for defending class certification in independent contractor misclassification claims, under both federal and California law.
We see four key takeaways for businesses.
First, the court ruled that it is improper to certify a class when there are individual questions about whether all putative class members suffered damages as a result of the allegedly improper practice. The court conceded that the “predominance” requirement would be satisfied if the allegedly improper conduct caused damages to all class members and only the amount of damages for each individual varied.
But the predominance requirement is not met when individual circumstances make it unclear whether each individual suffered any damages. In other words, if the impact of misclassification would be failing to pay overtime, then it is first necessary to consider whether each putative class member worked enough hours to qualify for overtime pay. If an individualized analysis is required for each worker in the putative class to see if they were damaged at all by the alleged misclassification, then the predominance standard is not met.
Second, the court differentiated between joint employment issues and misclassification issues. In this case, many of the putative class members were engaged by vendors, not directly by the defendant, Field Asset Services (FAS).
The court ruled that the issue relating to FAS’s liability is one of joint employment, not misclassification. In California, the ABC Test established after Dynamex and AB 5 is not used to determine joint employment. It was undisputed that some putative class members were sole proprietors, but others worked for subcontractor entities that had multiple workers.
The Ninth Circuit remanded to the district court to evaluate which individuals had other employers such that their claims against FAS were joint employment claims, not misclassification claims. The difference is important because the test for determining joint employment is different from the test for determining whether an independent contractor should be classified instead as an employee.
Third, the Ninth Circuit reversed the district court’s decision to grant partial summary judgment in favor of the workers on the misclassification question. Summary judgment was inappropriate because there were factors supporting both employee and independent contractor status. The fact finder needs to decide how to weigh those factors.
The court also emphasized that control over “results” does not convert an independent contractor to an employee under a Right to Control analysis. The fact finder is entitled to decide what is encompassed within “results” in the context of this dispute. Setting specifications around work orders, including related training and guidance, can properly be viewed as controlling “results,” not as controlling the manner and means by which the work is performed. A fact finder needs to make this determination.
Fourth, as to any sole proprietors in the putative class, the legal issue is misclassification. That would seem to require application of California’s ABC Test. But not so fast. Exceptions may apply.
The Ninth Circuit ruled that there were genuine issues of fact over parts A and C of the ABC Test, but not part B. Under part B, a worker is an employee unless the person performs work that is “outside the usual course of the hiring entity’s business.” FAS argued that it is in the business of arranging property preservation services, not in the business of providing them. The Ninth Circuit looked at FAS’s advertising, which says they offer a full range of services. The Court also analogized to some of the rideshare cases, in which California courts rejected rideshare companies’ claims that they are merely technology providers. The Court concluded that under the ABC Test, summary judgment would have been appropriate since part B was not met.
But after AB 5 and AB 2257, the ABC Test is not necessarily the applicable test. The court ruled that there was a genuine issue of fact as to whether the arrangement here meets the business-to-business exception in California Labor Code § 2776. If the exception applies, then the ABC Test would not apply, and the determination of employee status would be made using the Borello balancing test.
The Ninth Circuit reversed the district court and remanded for further proceedings.
Bottom Line: The Bowerman case roadmaps a number of potential defenses against independent contractor misclassification class action claims under both California law and Rule 23 of the Federal Rules of Civil Procedure.