Ninth Circuit Court of Appeals Reverses Against Employers
Continuing the recent trend in questioning the propriety of classifying workers as independent contractors instead of employees, the Ninth Circuit reversed an employer’s victory on this issue in Narayan v. EGL, Inc. EGL enters into contracts with persons intended to be independent contractors (ICs). The ICs lease vehicles and acknowledge that they will act as independent contractors to provide delivery services for EGL. Each IC acknowledged that he or she was not an employee, and that he or she would “exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations.” And, by contract, the ICs agreed that the contracts were to be enforced under Texas law. Nonetheless, a number of such California-based persons sued EGL claiming that they were employees and entitled to overtime pay, reimbursement of expenses, off-duty meal periods and other employment related claims.
The District Court for the Northern District of California found that the plaintiffs’ claims did not have merit and granted summary judgment in favor of EGL. The District Court not only held that Texas law applied and that under Texas law, the plaintiffs could not be considered to be employees, but also held that the same result would follow under California law. Unfortunately for EGL, the District Court did not make any factual analysis to support the alternative finding and conclusion.
The Ninth Circuit reversed the District Court’s decision and held that the plaintiffs’ claims arose under California’s regulatory scheme and were governed by California law. Thus, the issue was whether under California’s labor laws (not Texas law), the plaintiffs were employees or independent contractors. And, despite the trial court’s express finding that the plaintiffs would be considered to be independent contractors in California, the Ninth Circuit disagreed and found a triable issue of fact on this question.
What should Companies do in light of Narayan and other recent court decisions and enforcement efforts focused on improper independent contractor classification? Companies that have entered into Independent Contractor contracts (or verbal agreements) with persons located in California should consider having these relationships reviewed to assess whether the IC designation will hold up in California.
