Court of Appeal Finds "At Will" Insurance Agent Was Independent Contractor

Happy New Year!

Kimbly Arnold was an agent working for Mutual of Omaha.  She was non-exclusive, and sold other lines as well.  She was "at will" but was paid solely on commissions, had no office space unless she paid for it, had no supervisor or other personnel "managing her."  Her only job requirement was to submit at least one application for insurance every six months. 
Arnold took a job with another company requiring an exclusive relationship. She then brought a class action alleging failure to reimburse expenses under Labor Code Section 2802, and failure to pay wages at the time of termination.  Both of these claims require an "employment" relationship. 
Agreeing with the trial court, the Court of Appeal held that Arnold was an independent contractor, based in part on this evidence:

Mutual managers make themselves available to assist agents, as distinguished from supervising them. Training is generally not mandatory and is offered chiefly for the guidance of "new" agents. Training is required only with respect to compliance with state law directives. Managers provide assistance with sales or clients when an agent "wants them to assist." Software is provided by Mutual as a "best practice[e]" to enable agents to sell its products more successfully. Conference rooms, if available, are provided as a courtesy to agents seeking to set up a meeting and have no other space in the office. Mutual policy does not otherwise reimburse agents for regular business expenses, such as entertaining a client, although it does provide certain "prospecting" credits, beginning when an agent is newly appointed, by which the agent might apply for reimbursement for mailings, newsletters, and similar expenses to generate new business for Mutual products. The credits must be used and have no separate compensatory value. While Mutual pays its agents in two-week periods, payments are comprised of commissions and bonuses established by policy, and there is no guaranteed compensation; advances may be authorized only by a general manager in the event an agent has submitted an application for which a policy is likely to be issued. Advances are rare, due to the policy to pay commissions only on business actually issued, as opposed to routine advances for the purpose of regularizing payment amounts. . . ..

Arnold used her own judgment in determining whom she would solicit for applications for Mutual‟s products, the time, place, and manner in which she would solicit, and the amount of time she spent soliciting for Mutual‟s products. Her appointment with Mutual was nonexclusive, and she in fact solicited for other insurance companies during her appointment with Mutual. Her assistant general manager at Mutual‟s Concord office did not evaluate her performance and did not monitor or supervise her work. Training offered by Mutual was voluntary for agents, except as required for compliance with state law. Agents who chose to use the Concord office were required to pay a fee for their workspace and telephone service. Arnold‟s minimal performance requirement to avoid automatic termination of her appointment was to submit one application for Mutual‟s products within each 180-day period. Thus, under the principal test for employment under common law principles, Mutual had no significant right to control the manner and means by which Arnold accomplished the results of the services she performed as one of Mutual‟s soliciting agents.
The additional factors of the common law test also weigh in favor of finding an independent contractor relationship. Although Mutual could terminate the appointment at will, a termination at-will clause for both parties may properly be included in an independent contractor agreement, and is not by itself a basis for changing that relationship to one of an employee.
Notably, Arnold was engaged in a distinct occupation requiring a license from the Department of Insurance, and was responsible for her own instrumentalities or tools with the exception of limited resources offered by Mutual to enhance their agents‟ successful solicitation of Mutual‟s products. Arnold was required to pay a fee for the use of Mutual‟s office space and telephone service. Although Mutual paid its agents in a systematic way every two weeks, Arnold‟s payment itself—chiefly commissions—was based on her results and not the amount of time she spent working on Mutual‟s behalf. Finally, both Arnold and Mutual believed, at the time of her appointment, they were creating an independent contractor relationship and not an employee relationship.

Thus, the court went through the typical analysis of an independent contractor relationship under California's "common law" test and came up with little evidence of an employer-employee relationship.  The court rejected Arnold's attempt to define employee more broadly by using a Labor Code Section that contains no definition of employee... (Lab. Code 2750).

Anyway, the case is Arnold v. Mutual of Omaha Ins. Co. and the opinion is here.

California Supreme Court Limits Employer Liability to IC's Employees

Typically, when an organization hires a vendor / independent contractor, the hiring organization is not liable to the vendor's employees when something goes wrong. The vendor/contractor is the "employer" responsible to its own employees.

As explained by the California  Supreme Court:

Defendant US Airways uses a conveyor to move luggage at San Francisco International Airport. The airport is the actual owner of the conveyor, but US Airways uses it under a permit and has responsibility for its maintenance. US Airways hired independent contractor Lloyd W. Aubry Co. to maintain and repair the conveyor; the airline neither directed nor had its employees participate in Aubry‘s work.

The conveyor lacked certain safety guards required by applicable regulations. Anthony Verdon Lujan, who goes by the name Verdon, was inspecting the conveyor as an employee of Aubry, and his arm got caught in its moving parts.

Plaintiff SeaBright Insurance Company, Aubry‘s workers‘ compensation insurer, paid Verdon benefits based on the injury and then sued defendant US Airways, claiming the airline caused Verdon‘s injury and seeking to recover what it paid in benefits. Verdon intervened as a plaintiff in the action, alleging causes of action for negligence and premises liability.

Of special relevance to this case, the insurance company argued that US Airways was liable because of its obligations under CalOSHA to provide a "safe workplace." The issue was whether US Airways could delegate the duty to provide a safe workplace to its contractor, with respect to the safety of the contractor's employees.

Was US Airways liable for the injury to Verdon, even though Aubry was Verdon's employer and Verdon was covered by Workers' Compensation Insurance?  Hmmm?  Heck I don't know, I was asking you.

Oh, right the California Supreme Court knows. And the Court said:

plaintiffs here cannot recover in tort from defendant US Airways on a theory that employee Verdon‘s workplace injury resulted from defendant‘s breach of what plaintiffs describe as a nondelegable duty under Cal-OSHA regulations to provide safety guards on the conveyor. Hence, the Court of Appeal erred in reversing the trial court‘s grant of summary judgment for defendant.

The court emphasized that US Airways owed its own employees a non-delegable duty to provide a safe workplace. But Verdon, an employee of Aubry, could not look to US Airways for relief.

The decision is Seabright Ins. Co. v. US Airways and the opinion is here.

Ninth Circuit Thwarts End Run Around California Labor Code

EGL, a Texas transportation company, came up with an idea. Avoid all those pesky California wage and hour laws by making everyone an independent contractor, and inserting a choice of law clause into the agreement.

First, the court had to get by the Texas choice of law clause. The clause said only that the independent contractor agreement would be "interpreted under the law of the State of Texas." The claims, however, were not brought under the agreement, but rather were brought under the California Labor Code. So, this case is a warning to practitioners to draft choice of law clauses expansively. The court did not consider whether the Texas choice of law clause could be enforced in California.

Then, applying California law, the court reversed summary judgment. The court held that there was significant evidence of an employment relationship under California's test for independent contractor status. The court went on at length. So, you can read the opinion in Narayan v. EGL, Inc. et al. here.

Court of Appeal: Class Certification Denied in Independent Contractor Case

Ali brought a class action on behalf of taxi drivers. The primary claim was that the drivers were misclassified as independent contractors. Ali sought class certification, which the trial court denied.

The Court of Appeal affirmed, on the ground that common issues did not predominate. The company submitted over 40 declarations demonstrating that each putative class member experienced different working conditions and degrees of control by the company. Therefore, the case was not amenable to class treatment.

This case demonstrates that a motion for class certification may be defeated where declarations demonstrate numerous differences among each putative plaintiff's treatment. If the plaintiff cannot generalize about all employees by pointing to a few, a trial court may find that a class action is not suitable.

The case is Ali v. USA Cab LTD and the opinion is here.

Court of Appeal Upholds Independent Contractor Status

The Court of Appeal rejected a plaintiff's claim that he was an employee rather than an independent contractor. The plaintiff alleged that the independent contractor agreement's "at will" clause established employee status. The court of appeal disagreed, holding that the other indicia of contractor status were so strong that they overcame the at-will employment clause. The court found persuasive that the company did not control the worker, an inspector, at the job site, that he provided his own tools and equipment, that he performed skilled work, and the parties' agreement contemplated the independent contractor relationship.

The case is Varisco v. Gateway Science and Eng'g and the opinion is here.

Proposed SB 1583 Imposes Liability for Bad Independent Contractor Advice

Non-attorney HR consultants - heads up!

SB 1583, now pending in the legislature, would impose penalties on third parties who merely advise employers that a given worker can be classified as an independent contractor. The penalty applies only if the worker is later found to have been mis-classified. The penalty is $200 per day per contractor. Licensed attorneys are exempt from this bill (whew).

The proposed bill text is here. Be careful out there!

DGV

Newspaper Delivery Drivers Are Employees for Workers' Comp. Purposes

State Compensation Insurance Fund assessed Antelope Valley Press workers' compensation premiums for newspaper delivery workers. AVP classified these persons as independent contractors, not employees, and challenged SCIF's decision in court. The Court of Appeal affirmed the trial court's conclusion that the delivery workers were properly considered employees.

The Court of Appeal found “the evidence does not show that in making deliveries. . . the carriers are engaged in a distinct occupation or business of their own” and “delivering papers requires no particular skill.” Moreover, the same company had employees, whom they admitted were employees, performing the same duties as the purported contractors. In addition, applying the seminal case of S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, found that nearly all the factors therein pointed to employee status. In particular, AVP controlled numerous aspects of how the deliverypersons handled their duties.

Three recent court of appeal opinions have found employee status with respect to delivery persons. The previous ones were JKH Enterprises v. Dept. of Industrial Relations and Estrada v. Federal Express. The current case is Antelope Valley Press v. Poizner and the opinion is here.

Thanks to Matt Norfleet of our San Francisco office for pointing out the decision.

Ninth Circuit: Cab Operators Were Employees, Not Independent Contractors

When a union organizes an employer's workers, the National Labor Relations Act governs the union election. Independent contractors cannot be organized because they are not considered "employees." When an employer claims that workers are independent contractors as a defense to union organizing, the NLRB (and a reviewing court) will apply federal law. In NLRB v. Friendly Cab Co., opinion here, the Ninth Circuit held that Friendly's cab drivers were employees, not independent contractors, and therefore were properly organized by the union. The opinion thoroughly discusses the criteria federal courts apply to independent contractor analysis in the labor law context.

California Court: Alleged Independent Contractor Drivers Are Employees

In Estrada v. Fedex Ground Package System, Inc., the Court of Appeal upheld the trial court's determination that certain FedEx drivers were mis-classified as independent contractors.

There's a lot more to the court's analysis, but this pretty much sums up the court's discussion of the independent contractor issue:

FedEx’s control over every exquisite detail of the drivers’ performance, including the color of their socks and the style of their hair, supports the trial court’s onclusion that the drivers are employees, not independent contractors.

The Court of Appeal also denied FedEx's appeal of the class certification order. The Court concisely summarized the requirements:

A class action requires an ascertainable class with a well-defined community of
interest among its members. Community of interest, in turn, requires that common questions of law or fact predominate, and that class representatives (who must be able to adequately represent the class) have claims typical of the class. The class is ascertainable if it identifies a group of unnamed plaintiffs by describing a set of common characteristics sufficient to allow a member of that group to identify himself as having a right to recover based on the description.

Finally, the Court of Appeal ruled once and for all that employers may require employees to use their own vehicles as part of the job. (Of course, the employee must be reimbursed for the expenses associated with using the vehicle).

DGV