The California Supreme Court in Ayala v. Antelope Valley Newspapers, Inc. recently affirmed and remanded the reversal of a denial of class certification in an independent contractor misclassification case, emphasizing the standard terms of the contractual agreements between the parties. The plaintiffs were newspaper carriers for the defendant newspaper publisher who were contracted pursuant to two preprinted standard form contracts. Based on the theory that they were misclassified as independent contractors, plaintiffs alleged overtime, meal and rest break violations, and sought reimbursement for expenses and penalties.
Plaintiffs moved to certify a class, contending that the central question to liability was whether putative class members were misclassified and that this question could be answered with common proof—namely the standard contracts between the carrier and the newspaper publisher. Defendant, on the other hand, argued that the case was not suitable for class treatment because of the variations in how the carriers performed their work. Defendant further argued that even if some carriers were employees, some of plaintiffs’ claims presented additional, unmanageable individual issues.
The trial court denied certification, finding that common issues did not predominate because the analysis would require “heavily individualized inquiries” into the newspaper’s control of the carriers’ work, and plaintiffs’ overtime and meal and rest break claims would require additional individualized inquiries. While the Court of Appeal affirmed the trial court’s holding as to plaintiffs’ overtime and meal and rest break claims, the court unanimously reversed the trial court’s denial of certification as to the remaining claims. Specifically, the appellate court found that while the evidence offered by the newspaper did not establish that common issues did not predominate on the relevant inquiry—whether the newspaper publisher had the right to control the carriers’ work.
Agreeing that the trial court had misunderstood the plaintiffs’ theory of the case, the California Supreme Court affirmed the Court of Appeal’s order. In its opinion, the Court first discussed the legal principles of common law employment. The Court explained that “what matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” The Court repeated this principle a number of times throughout the opinion, and this principle was the linchpin for the Court’s ruling.
Based on this principle, the court went on to explain that the relevant inquiry at the class certification stage is not the degree of control the newspaper had over how the carriers performed their work. Rather, the relevant issue is whether the newspaper’s right to control the work of the carriers was sufficiently uniform to permit adjudication on a classwide basis. Considering the newspaper’s right to control, the Court emphasized that the relationship was governed by form contracts. The Court noted that the contracts uniformly addressed the newspaper’s control over what is to be delivered, when and how deliveries are to be made, and the newspaper’s right to terminate the contract without cause on thirty days’ notice. Because the Court found that the trial court had focused on the wrong issue—i.e., the commonality of how the publisher exercised control rather than its right to do so – the Court remanded the case to the trial court.
Beyond the main holding in Ayala, the court went on to briefly discuss “secondary factors” of the common law employment test, which are also referred to as the Borello factors. The Court once again emphasized the need for courts to assess the correct factors, noting for example that the inquiry is not where a contractor works, but rather who provides the place of work. The Supreme Court then opined that once a court identifies common and individual factors in the analysis, the class certification element of predominance requires courts to weigh costs and benefits. In doing so, the Court explained that different factors vary in their significance to the common law employment test. The key, according to the Court, is the materiality of any such factor to the dispute.
Coming on the heels of Duran v. U.S. Bank National Association, the Ayala opinion is just one of the several class certification opinions that the California high court has issued in recent years. A key take-away from this decision is how critical it is to challenge a plaintiff’s theory of recovery at the class certification level. If an employer can demonstrate that the theory is not susceptible to class treatment, but will instead devolve into individualized issues that frustrate the efficiencies that class litigation is supposed to achieve, then the employer should be able to defeat certification.