Ninth Circuit Delivers Blow to Employer in Independent Contractor Classification Case
Continuing the recent trend in questioniong the propriety of classifying workers as independent contractors instead of employees, the Ninth Circuit reversed an employer's victory on this issue in Narayan v. EGL, Inc. EGL, headquartered and incorporated in Texas, contracts with hundreds of persons and is the employer of hundreds of employees worldwide. EGL enters into contracts with persons intended to be independent contractors (ICs). The ICs lease vehicles and acknowledge that they will act as independent contractors to provide delivery services for EGL.Each IC acknowledged that he or she was not an employee, and that he or she would "exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations." And, by contract, the ICs agreed that the contracts were to be enforced under Texas law. Nonetheless, a number of such California-based persons sued EGL claiming that they were employees and entitled to overtime pay, reimbursement of expenses, off-duty meal periods and other employment related claims.
The District Court for the Northern District of California found that the plaintiffs' claims did not have merit and granted summary judgment in favor of EGL. TheDistrict Court not only held that Texas law applied and that under Texas law, the plaintiffs could not be considered to be employees, but also held that the same result would follow under California law. Unfortunately for EGL, the District Court did not make any factual analysis to support the alternative finding and conclusion.
The Ninth Circuitreversed the District Court's decision and held that the plaintiffs' claims arose under California's regulatory scheme and were governed by California law. Thus, the issue was whether under California's labor laws (not Texas law), the plaintiffs were employees or independent contractors. And, despite the trial court's express finding that the plaintiffs would be considered to be independent contractors in California, the Ninth Circuit disagreed and found a triable issue of fact on this question.
In analyzing the independent contractor classification question, the Ninth Circuit created a shifting burden test not unlike discrimination cases finding that once a plaintiff established a prima facie case that he or she was an employee that the burden shifts to the employer to prove that the person was an independent contractor. In this case, the Ninth Circuit concluded that the contract acknowledging independent contractor status was but one element in the employee/IC equation and that there were sufficient indicia of employment in this case to defeat summary judgment. The Ninth Circuit further opined that summary judgment would rarely be appropriate in cases where employers claim that the plaintiffs were independent contactors, based on the numerous factors that must be considered in making the determination.
What should Companies do in light of Narayan and other recent court decisions and enforcement efforts focused on improper independent contractor classification? Companies that have entered into Independent Contractor contracts (or verbal agreements) with persons located in California should consider having their counsel re-examine those relationships to assess whether the IC designation will hold up in California. If it will not, consider engaging counsel to either change practices or convert existing ICs to employment before claims are filed against your Company.