California Supreme Court Clarifies Standards for Class Certification of Independent Contract Class Actions
On Monday, the California Supreme Court issued yet another decision on class certification; this time in an action challenging the independent contractor (“IC”) classification of a proposed class of Antelope Valley News newspaper deliverers, Ayala v. Antelope Valley Newspapers, Inc. Although much of the case addresses the proper standards for evaluation whether a person is an IC or employee, the California Supreme Court further clarified the proper procedures for a trial court considering class certification and did so in a way that should lead either to depublication or reversal of the awful Hall v. Rite-Aid decision I blogged about last month.
Antelope Valley Newspapers (“AVN”) entered into one of two form contracts with individuals who delivered newspapers. The agreements purported to create an IC relationship, which meant that AVN did not formally provide meal and rest periods, did not reimburse expenses, did not pay overtime, and did not follow the other California regulations that apply only to employees. A group of newspaper deliverers filed a class action, asserting that they were all misclassified as independent contractors, and were entitled to damages and penalties for AVN’s failure to treat them as employees.
The trial court denied class certification, finding predominant individualized issues as to the level of control the newspaper company asserted over different putative class members. It also found variation in the so-called “secondary” factors that courts are supposed to examine in determining whether a work relationship is an employment or independent contractor relationship (e.g., whether the employee provides his own tools, works with multiple companies, or has some kind of notable expertise).
The court of appeal reversed the denial of certification in part. It found that, on the central issue of independent contractor status, the predominant question was the right to control the newspaper had under the IC contract as opposed to the actual control AVN exercised with respect to different deliverers. While the latter varied, the right to control was determined from the two commonly used independent contractor agreements. The court of appeal agreed, however, that individualized issues predominated as to overtime, meal and rest claims, so certification was denied on those particular claims. AVN sought review.
The California Supreme Court’s Decision
The California Supreme Court granted review and fully affirmed the Court of Appeal (including, apparently, its view that certification properly was denied on the meal, rest, and overtime claims — see pages 3-4). Its main holding was that the trial court needed to consider class certification anew because the proper question to decide that the trial court had not decided was whether AVN’s right to control the deliverers could be determined based on the content of the written independent contractor agreement (or other collective proof). In other words, if the right to control was the same across the class, it was proper to certify the class, even if the actual amount of control exercised varied widely from one delivery person to another. Furthermore, the trial court did not need to actually decide whether the putative class members were or were not independent contractors at the certification stage, but rather should only determine whether the answer to that question would be common to the class. As for the secondary factors that bear on independent contractor status, the trial court needed to consider whether they were truly material to the final answer and should deny certification only if there was substantial variation in amaterial secondary factor. The Supreme Court seemed to indicate that most of the secondary factors are not material but it was somewhat vague as to which ones would be material. In any event, it provided the necessary framework for the trial court to use on remand.
It is notable that the California Supreme Court did not simply order class certification. Rather, it sent the case back to the trial court to reconsider certification using the proper standards: “[T]he preferred course is to remand for the trial court to reconsider class certification under the correct legal standards.” (p. 16). Many appellate courts ignore this rule and simply certify classes when they find that the lower court did not follow the law in granting class certification.
Separate from that central holding, the California Supreme Court reaffirmed that it can be proper—and even necessary—for the trial court to consider merits issues at certification. Its discussion is wholly consistent with my criticism of the Hall v. Rite Aid suitable seating decision from last month, in which the court of appeal had held that where the parties have competing arguments as to the proper elements of the legal claim at issue, the trial court must accept the plaintiffs as correct. In Ayala, the California Supremes reiterated that the trial court has to consider the merits to determine what the actual elements are of the claim at issue at least to determine whether those elements could be manageably resolved using collective proof. To quote Justice Werdegar:
“The extent of Antelope Valley‘s legal right of control is a point of considerable dispute; indeed, it is likely the crux of the case‘s merits. To address such an issue on a motion for class certification is not necessarily erroneous. We recently reaffirmed that a court deciding a certification motion can resolve legal or factual disputes: To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them. But we cautioned that such an inquiry generally should occur only when necessary. The key to deciding whether a merits resolution is permitted, then, is whether certification depends upon the disputed issue.” (internal citations omitted)
In Hall, the court changed that standard of “resolve merits when necessary” to one of “resolve merits only in (undefined) extraordinary circumstances.” In reality, if the defendant is right as to the elements of the claim, and using the proper elements the case is not manageable as a class action, then the trial court should deny certification. Hopefully, this will lead to depublication or reversal of the erroneous Hall decision.