Independent Contractor Agreements Should be Reviewed

With Assembly Bill 5 taking effect Jan. 1, public agencies should not overlook potential joint employer liability claims, which may become more common under AB 5.

AB 5 adopted the ABC Test adopted by the California Supreme Court in Dynamex Operations West v. Superior Court for determining whether an individual worker is an employee or an independent contractor for California Labor and Unemployment Code purposes. Accordingly, some public agencies are rightly reviewing their independent contractor agreements to determine whether those contractors are still considered contractors under AB 5.

Separately, the California Court of Appeal’s 2019 decision in County of Ventura v. Public Employment Relations Board serves as a reminder to public agencies that there remain other grounds for potential employment liability when it comes to contractors’ employees: the joint employer doctrine. As public agencies review their independent contractor agreements for potential AB 5 compliance, they should also review contracts with entities that have employees for potential joint employer liability.

The Joint Employer Doctrine Generally
Although this is a heavily disputed area of the law, the generally accepted test for joint employer liability considers whether two or more employers exert direct and immediate control over the same employees such that both employers can be said to share or co-determine the essential terms and conditions of employment. Whether a joint employer relationship exists is a fact-specific determination and can depend on many factors including, but not limited to, whether the putative employer has control over the employee’s wages, hours, or terms and conditions of employment.

Public Agencies as Joint Employers
County of Ventura concerned the employees of 17 privately owned medical clinics under contract with the Ventura County Medical Center to provide medical services. The case began after Ventura County refused to process a petition by the Service Employees International Union to represent the clinic employees. Despite owning and operating VCMC, the County maintained that the privately owned clinics were the employees’ sole employers. The Court of Appeal rejected Ventura County’s position.

In finding Ventura County to be the clinic employees’ joint employer, the court examined the financial relationship between the County and the clinics, the County’s role in managing the clinics’ day-to-day operations, and how the County characterized its relationship with the clinics in its Medi-Cal and Medicare reports.

The following facts, among others, were cited by the court as facts supporting its joint employer finding:

• Despite each clinic directly hiring its employees and setting their salaries, the County retained ultimate control over the clinics’ financial resources that paid for compensation and staffing because each clinics’ annual operating budget had to be approved by the County.
• The County set the fees for the medical services provided by each clinic and owned all revenues and accounts receivable that each clinic generated. From that revenue, the County paid the clinics’ operating costs and covered any shortfalls.
• The County exercised control over clinic staffing decisions by requiring clinics and VCMC hospitals to participate in a “shared call” system whereby clinics shared staff as needed with other clinics and VCMC hospitals to ensure minimum staffing levels.
• Clinic employees were required to comply with, and could be disciplined for, violating VCMC’s policies, procedures and code of conduct.
• VCMC policies, rules and training requirements governed the manner and method in which clinic employees were required to perform day-to-day patient care.
• Clinic employees were required to wear a badge that identified them as affiliated with VCMC, used VCMC mail, email and IT systems, and performed various administrative tasks on behalf of the County.
• The County provided the facilities and equipment the clinic employees used in performing their day-to-day tasks, restricted the use of the facilities by clinic employees, but allowed itself to use the same facilities for any purpose.
• The County reported in its Medi-Cal and Medicare applications that it had management responsibilities over clinic operations.

Implications for Public Agencies
In the wake of AB 5, many public agencies across California will likely audit and review their independent contractor agreements for possible AB 5 issues. But whether as a part of this process or as a separate review, County of Ventura demonstrates that public agencies should be on the lookout for potential joint employer liability scenarios in their independent contractor agreements. Simply because another entity hires, fires, and signs the paychecks of an employee does not automatically insulate public agencies from joint employer liability claims.

To that end, public agencies should pay particular attention to, and perhaps may want to rethink, certain contractual arrangements with private entities. While a joint employer liability finding is very fact-specific, County of Ventura highlights the risks facing public agencies that utilize and exercise financial, managerial and day-to-day control over the employees of an entity under contract with the public agency.

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