Ninth Circuit Applies California Law Despite Choice-Of-Law Clause in Independent Contractor Agreement

In Narayan v. EGL, Inc., the employer, EGL, Inc. (“EGL”), is a global transportation company that provides “air and ocean freight forwarding, customs brokerage, [and] local pickup and delivery service.” EGL is incorporated and headquartered in Texas, but it operates through a network of over 400 facilities in 100 countries. The case was brought by three drivers who were engaged to provide freight pick-up and delivery services for EGL in California. All three drivers had entered into “Leased Equipment and Independent Contractor Services Agreements” (the “Agreements”) with EGL that were employer-drafted pre-printed form contracts. The Agreements contained acknowledgments by the drivers that they were independent contractors and choice-of-law clauses providing that the Agreements shall be interpreted in accordance with Texas law.

The drivers sued claiming that EGL had violated provisions of the California Labor Code by failing to pay overtime wages, business expenses and meal compensation and unlawfully taking deductions from their wages. EGL argued that the drivers were independent contractors, not employees. EGL also argued that the issue of whether the drivers are independent contractors or employees must be decided under Texas law pursuant to the choice-of-law clause in the Agreements.

The Ninth Circuit held that California law applied, despite the contract terms. Because the case involves claims for benefits under the California Labor Code, the Court found that the claims do not arise out of the Agreements or involve the interpretation of the Agreements. Instead, liability depends on the definition of the term “employee” under the California Labor Code. As a result, the Court held that “California law should apply to define the boundaries of liability under [the California regulatory] scheme.”

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