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Ninth Circuit Amends Narayan v. EGL, Weakening Language Re Effect of Contracts Acknowledging Independent Contractor Status

In Employee/Independent Contractor on August 6, 2010 at 5:57 pm
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Significantly, the Ninth Circuit Court of Appeals yesterday amended its opinion in Narayan v. EGL, Inc., — F.3d —-, 2010 WL 3035487 (9th Cir. July 13, 2010).  The Court had written that “The fact that the Drivers here had contracts ‘expressly acknowledging that they were independent contractors‘ is simply not significant under California’s test of employment.”

The Court replaced this holding with “That the Drivers here had contracts ‘expressly acknowledging that they were independent contractors’ is simply not dispositive under California’s test of employment.”

By CHARLES H. JUNG

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S.D. California Certifies 23(b)(3) Class of Newspaper Home Delivery Carriers

In 23(b)(3) Class, Class Actions, Employee/Independent Contractor on August 4, 2010 at 8:14 am
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In another case involving an employer’s attempt to contract around a putative employer/employee relationship, the Southern District of California certified a 23(b)(3) class of newspaper home delivery carriers.  Dalton v. Lee Publications, Inc., 2010 WL 2985130 (S.D. Cal. July 27, 2010) (slip op.).

Defendant Lee Publications, doing business as North County Times (“NCT”), operates the North County Times, a newspaper of general circulation in the San Diego area. Plaintiffs are current and former home-delivery newspaper carriers for NCT.

The class was defined as “[a]ll persons presently and formerly engaged as newspaper home delivery carriers by LEE PUBLICATIONS, INC. and for the North County Times newspaper in the State of California during the period from and including April 18, 2004, through and including the date of trial set for this action, and who, as a condition of such engagement, signed a written agreement for the home delivery of newspapers, which categorized them as independent contractors and not employees.”  Id. at *1, n.1.

Each class member has signed contracts with NCT that contained provisions regarding the carriers’ primary duties, rate of pay, liabilities, penalties, and expense reimbursement, among other things.  All the contracts stated that the carrier “is an independent contractor, is not an employee or agent of the Company, and is not subject to the Company’s direction or control.” And either party may terminate the contract without cause with thirty-days notice, or for cause without notice. The Court examines the contracts in more detail below.

The Court described the Plaintiff’s Tasks as follows:

Plaintiffs deliver the North County Times to the homes of subscribers. Each morning, the newspaper carriers arrive at one of several distribution centers in San Diego County. The carriers arrive at different times. Although they generally arrive between 1:00 a.m. and 4:00 a.m., some arrive earlier or later. The arrival time varies depending on the day of the week.

The carriers are contractually obligated to deliver the assembled newspapers by 6:00 a.m. each weekday and 7:00 a.m. on Saturday and Sunday.

Upon arrival, the carriers are responsible for assembling the newspapers. Some assemble the papers at the distribution center-those that use the distribution center pay a rental fee-and others assemble the papers elsewhere. Assembling the newspapers may involve folding or inserting the following: newspaper inserts, sections, pre-prints, samples, supplements and other products at NCT’s direction. The carriers pay for their own rubber bands and plastic bags used to assemble the papers. Some carriers buy the rubber bands and bags from Defendant, and others purchase them elsewhere. The carriers also pay for their own gas and automobile expenses they incur delivering the newspapers.

Id. at *1.

In analyzing whether the primary factor in determining the employee-employer relationship, the right to control, is susceptible to common proof, the court found that the class members are all home-delivery newspaper carriers who work, or used to work, for Defendant. They all did the same job. Although there are differences between them, which Defendant lists in detail, whether they are independent contractors or employees is still susceptible to common proof.  Thus, the Court found that common questions predominate on this issue.

Defendant argued that calculating damages on each of Plaintiffs’ causes of action would require individualized proof. The court rejected this argument stating that “although calculating damages is generally an individualized task, the Court finds that calculating them here would not require so much individualized analysis to defeat certification. That is mainly because Defendant has kept extensive records.”  Id. at *7.  The Court concluded that the “calculation of the [damages] for each individual [carrier], if necessary, will likely be fairly mechanical.”  Id. at *8.

Thus, the Court certified the Rule 23(b)(3) class.

By CHARLES H. JUNG

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Ninth Circuit Holds That Contracts Expressly Acknowledging Independent Contractor Status “Simply Not Significant” Under California’s Test of Employment”

In Employee/Independent Contractor on August 2, 2010 at 6:12 pm
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In Narayan v. EGL, Inc., — F.3d —-, 2010 WL 2735708 (9th Cir. July 13, 2010), the Ninth Circuit decided whether, assuming the existence of an employer-employee relationship in California, the employer may avoid its obligations under the Labor Code by inserting a clause in an employer-drafted pre-printed form contract in which: (1) the employee acknowledges that he is an independent contractor and (2) agrees that the contract would be interpreted in accordance with the laws of another jurisdiction where such an agreement is generally enforceable.  Judge Ronald M. Whyte of the Northern District of California found that declarations in the underlying agreements stating that the drivers were independent contractors rather than employees compelled the holding that the plaintiffs were indeed independent contractors as a matter of law.  Id. at *2.  Consequently, the district court granted the employer’s motion for summary judgment.  The Ninth Circuit reversed.

EGL, the employer, is a global transportation, supply chain management and information services company incorporated under the laws of Texas and headquartered in Texas.  EGL’s services include, inter alia, “air and ocean freight forwarding, customs brokerage, [and] local pickup and delivery service.” Plaintiff drivers (the “Drivers”) were residents of California who were engaged to provide freight pick-up and delivery services for EGL in California. All three Drivers signed agreements with EGL for “Leased Equipment and Independent Contractor Services” (the “Agreements”). The Agreements provided that the “intention of the parties is to … create a vendor/vendee relationship between Contractor and [EGL],” and acknowledged that “[n]either Contractor nor any of its employees or agents shall be considered to be employees of” EGL. The terms of the Agreements provide, inter alia, that the Drivers “shall exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations,” although EGL retained the right to “issue reasonable and lawful instructions regarding the results to be accomplished.”  Id. at *1.

The Ninth Circuit noted the difficultly in overcoming the  Drivers’  prima facie case that the relationship was one of employer/employee. “This hurdle is particularly difficult for EGL to overcome in light of the second special consideration in this case, namely, the multi-faceted test that applies in resolving the issue whether the Drivers are employees.”  Id. at *4.

The Ninth Circuit described the multifactor approach to evaluating the:

indicia of an employment relationship, the most important of which is the “right to discharge at will, without cause.” Borello, 256 Cal.Rptr. 543, 769 P.2d at 404 (quoting Tieberg v. Unemployment Ins.App. Bd., 2 Cal.3d 943, 88 Cal.Rptr. 175, 471 P.2d 975, 979 (Cal.1970)). Borello endorsed other factors derived from the Restatement (Second) of Agency that may point to an employment relationship:  (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.

Id. at *4.

The Court concluded that the “fact that the Drivers here had contracts ‘expressly acknowledging that they were independent contractors’ is simply not significant under California’s test of employment.” Id. at *8 (citing Borello, 256 Cal. Rptr. 543, 769 P.2d at 403 (“The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.”)).

The Court evaluated the various indicia of employment and concluded that:

Ultimately, under California’s multi-faceted test of employment, there existed at the very least sufficient indicia of an employment relationship between the plaintiff Drivers and EGL such that a reasonable jury could find the existence of such a relationship. Indeed, although it plays no role in our decision to deny summary judgment, it is not without significance that, applying comparable factors to those that we apply here, the Internal Revenue Service (at EGL’s request) and the Employment Development Department of California (at Narayan’s request) have determined that Narayan was an employee for federal tax purposes (applying federal law) and California Unemployment or Disability Insurance (applying California law), respectively.

Id. at *8.

UPDATE:

On August 5, 2010, the Ninth Circuit amended its holding, highlighted above.

By CHARLES H. JUNG

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