Dynamex Operations v. Superior Court, 4 Cal.5th 903 (2018).
This is the key case to understanding classification of appraisers as independent contractors under the ABC test. The California Supreme Court issued its landmark decision in Dynamex on April 30, 2018. In its opinion, the Court held that for purposes of California’s Industrial Wage Orders, which most significantly specify overtime requirements for most non-exempt employees in California, a business classifying a worker or service provider as an independent contractor bears the burden of establishing that such a classification is proper under the so-called “ABC test.” AB 5 has now codified this test and given it wider application beyond the Industrial Wage Orders, while also carving out exceptions for specific types of workers and service providers.
S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989).
Until Dynamex, the California Supreme Court’s opinion in Borello was the primary caselaw in California relevant to determining whether a worker or service provider is properly treated as an independent contractor for purposes of California’s employment and labor laws. The test in Borello looks to the “economic realities” of the relationship between the individual and the business entity. It considers the same factors applied by many other states, while adding some “secondary” factors, such as whether the worker is engaged in a distinct occupation or business, or is integral to the business, the level of economic dependence the worker has on the business, the skill required in the occupation, and whether the worker or the business supplies the “tools” to perform the work.The Borello test is still relevant to the specific professions, occupations and trades for which there are now exceptions to the ABC test under AB 5. For example, it would likely be the relevant test applied to real estate agents or brokers when they are performing broker price opinions (BPOs) or evaluations.
Bowerman v. Field Asset Services, U.S. District Court, N.D. Cal. (Order Granting Partial Summary Judgment, March 17, 2017).
This case decision is not precedential law. It is included here to paint a vivid picture of the legal and economic risks to appraisal management companies (AMCs) and other vendor management companies in connection with potential contractor reclassification lawsuits. Note, however, that the trial court’s determination in this case that the workers should be reclassified was made under the earlier, less stringent test in Borello. This points to the heightened risk following AB 5.
Bowerman concerns a reclassification class action by independent contractor field service workers who performed services for a vendor management company (Field Asset Services, which later became part of Assurant) utilized by mortgage lenders for REO properties.
To prove the key point that the company’s vendor panelists should be classified as employees, rather than as contractors, plaintiff’s counsel offered evidence that the company “tells vendors where to go, when to go, what to do, when to get it done and how much and when they will be paid for their efforts.” The evidence included:
- As part of being approved for Field Asset Service’s panel, vendors signed an agreement which, although referring to vendors as independent contractors, set forth detailed requirements for accepting assignments, scheduling property access, timely performance, photo requirements, status updating and quality control.
- Panelists were not given a meaningful opportunity to negotiate the agreement.
- Field Asset Services offered assignments to panelists through its proprietary software platform and panelists were required to use this platform to upload their status reports, photos and invoices.
- Panelists were required to respond to assignment requests within 24 hours and complete assignments within a stated time period, sometimes just three days.
- Declining too many assignments or cherry picking the best could result in fewer assignments being offered.
- Field Asset Services “score carded” panelists on their acceptance/declination of assignments, status communications, timeliness of completion and quality. A low rating could result in a warning, reduction of work or ineligibility.
- Field Asset Services tracked its panelists’ performance and recorded warnings, counseling and eligibility suspensions in “vendor profiles.”
At trial, Field Asset Services’ panelists testified that they worked long hours, often 10 hours per day six days a week. And, of course, since the panelists were classified as independent contractors, they did not receive overtime. Nor did Field Asset Services reimburse them for expenses such as mileage, insurance, equipment, cell phones, internet use or computers.
What happened? After four years of litigation, the court ruled on summary judgment that any vendor who derived more than 70% of his or her income from Field Asset Services should be classified as an employee and was thus entitled to overtime and payment of expenses. The essential reasoning was that Field Asset Services had the right to so closely control the work of its contractors (and also exercised that right) and the contractors were so dependent on Field Asset Services that the contractors were employees under California law. (Note again, this determination was made under the far easier test that existed under Borello.)
With liability established, the issue was then how much did Field Asset Services owe its reclassified contractors? The damages claimed by the named plaintiff and 10 class members went to trial first. The jury awarded a total of $2,060,237 to those 11 individuals for unpaid overtime, unpaid expenses, penalties and interest. The award to the named plaintiff was a striking example: the jury determined that he worked 4,845 hours of overtime from 2010 through 2016 for which he should recover $98,615 in overtime payments (on top of the payments he actually received for doing the work) and that he should be awarded $168,746 for his unpaid expenses ($95,247 for mileage alone). A determination of the amount of damages for the remaining 100+ class members is still in the air (as the case in on appeal).
Boyd v. Landsafe Appraisal Services and Bank of America, U.S. District Court, C.D. Cal. (Order Granting Partial Summary Judgment that Employee Appraisers Should Be Classified Non-Exempt, March 17, 2017).