Who's The Boss? California Supreme Court Clarifies Joint Employment and Independent Contractor Status
In Reynolds v. Bement 36 Cal.4th 1075 (2005), the California Supreme Court recently clarified the standard for determining who is an "employer." (See link to related entry). In doing so, the Court rejected the extremely broad definition of "employer" used under the federal Fair Labor Standards Act ("FLSA"), opting instead to apply only the much the narrower common law definition. This development has import implications for two increasingly common categories of class actions: claims based on theories of "joint employment" and claims based on the alleged mis-clasification of independent contractors.
Under a joint employment theory, plaintiffs may sue a California company for the wage and hour violations of its contractors or suppliers, claiming that the two entities are actually "joint employers" who are jointly and severally liable for wages. In this way, plaintiffs are able to seek liability against a "joint employer" who is a more attractive "deep pocket" defendant than the contractor or supplier who was contractually responsible for paying their wages. Previously, courts had held that any company could be held liable for wages if it received the benefit of the personal services and "directly or indirectly . . . exercises control over the wages, hours, or working conditions of" those workers. See Bureerong v. Uvawas, 922 F.Supp. 1450, 1467-69 (CD Cal. 1996). Under Reynolds, however, it appears that such an "indirect" relationship is no longer sufficient. Rather, under the common law test an entity should no longer be considered an employer for wage payment purposes unless it has the actual "right to control the manner and means" by which the worker performed his job. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24 (1992).
By substituting this new common law test, Reynolds should also make it harder for plaintiffs to claim that a company's independent contractors are really misclassified employees. Indeed, for purposes of applying the wage obligations under the Labor Code, the Court explicitly rejected the use of the more liberal "economic reality" test set forth in its prior decision of SG Borello & Sons Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). The Court held that this test liberal test was meant to apply only in the context of applying the workers' compensation laws, but that application of the Labor Code, once again, depends on whether an entity meets the more stringent common law definition of an employer.