AYALA v. ANTELOPE VALLEY NEWSPAPERSAppellants’ Supplemental Reply Letter BriefCal.August 16, 2013DANIEL J. CALLAHAN STEPHEN E. BLAINE MICHAELJ. SACHS EDWARD SUSOLIK BRIAN J. MCCORMACK JAVIER H. VAN OORDT MARCP.MILES RAPHAEL CUNG DAVID J. DARNELL KATHLEEN L. DUNHAM D. BRYAN GARCIA ANN M. GUEVARA DAVID E. HAYEN TAE J. iM ROBERT LAWRENCE MICHAEL LEBOFF LAURA M. MORRIS SCOTT D. NELSON SUE Y. PARK CHRISTOPHER QUEALLY JAMES R. ROUSE KRISTY SCHLESINGER SARAH C. SERPA RYAN J. WILLIAMS MICHAELJ. WRIGHT OF COUNSEL SCOTT ABERNETHY SHELLEYM. LIBERTO OFFICE ADMINISTRATOR LAURALI M. KOBAL OURFILE NUMBER: 2926-02 Member of the International Lave Firms CALLAHAN & BLAINE California’s Premier Litigation Firm™ SUPREME COURT FILED AUG 16 2013 August 15, 2013 Attention: Clerk of the Court Supreme Court of California Earl Warren Building 350 McAllister Street San Francisco, CA 94102 Frank A. McGuire Clerk Deputy All Counsel (see attached ProofofService and Service List) Re: Ayala v. Antelope Valley Newspapers,et al. Case No. 8206874 To the Honorable Chief Justice and Associate Justices: This letter will serve as Plaintiffs and Respondents’(“Plaintiffs”) reply letter brief discussing the relevance ofMartinez v. Combs (2010) 49 Cal.4th 35, 52-57, 73 (“Martinez”) and [WC Wage Order No. 1-2001, subdivision 2(D)-(F) (Cal. Code Regs., tit. 8, Section 11010, subd. 2(D)-(F) ("Wage Order 1-2001”). I. INTRODUCTION In its Brief, Defendant and Respondent Antelope Valley Newspapers,Inc. (“Defendant”) argues that “neither Martinez nor the Wage Orderis relevant” because only the commonlaw test enunciated in S.G. Borello & Sons, Inc. v. Dept. OfIndus. Relations (1989) 48 Cal.3d 341 (“Borello”) controls whether the Plaintiffs were misclassified as independent contractors. This argument is without merit as Martinez holds that the IWC’s Wage Orders define who is an employer and whois an employee. Further, Martinez madeclear that the [WC’s Wage Orders’ definition of employeris not limited to the common law definition. Instead, the Wage Orders were intentionally designed “to reach irregular working arrangementsthat f[a]ll outside of the commonlaw.” Martinez, 49 Cal.4th at 58 (Emphasis added). Cases such as ours are exactly the type of irregular working arrangement the IWC Wage Orders should have authority over to ensure that workers are protected, that their wages are paid, andto prevent evasion and subterfuge. The Plaintiffs are newspapercarriers who performed essential, arduous work for Defendantforvery little pay. They constituted Defendant’s labor force and performed the exact sameservices that 3 Hutton Centre. Drive - Ninth Floor - Santa Ana, CA 92707 - (714) 241-4444 + Fax (714) 241-4445 - www.callahan-law.com CALLAHAN & BLAINE _ www.callahan-law.com ~California'sPremierLitigation Firm" Clerk, Supreme Court of California August 15, 2013 Page 2 employees would provide. Defendant and numerous other businesses, however, have avoided providing such workers the protections of California law and evaded substantial tax obligations by labeling this essential workforce as independent contractors. Martinez recognizes that the Wage Orders were designed to prevent such schemes, and workers should not be denied the protections of the Labor Code and Wage Orders simply because they do not meet the commonlaw definition of employee. Contrary to Defendant’s claim, a ruling that the IWC Wage Order controls would not sound the death knell of the independent contractor relationship in California. The IWC Wage Ordersare intended to govern over“irregular working relationships”, i.e., relationships such as we have here where plaintiffs are performing the same work that an employee would perform for his or her employer. The IWC wageorders would not apply to a traditional independent contractor relationship, such as the house painter described in Defendant’s AnswerBrief. This painter is not serving the same function as an employee, and he/sheis not in an irregular working relationship. Instead, he/she is providing a temporary, one-time service. In contrast, here, © Defendant used hundredsofcarriers on a daily basis, with the expectation that they would work for an extended period of time and perform anessential function of Defendant’s business. Although the Plaintiffs performed the exact same function as employees, Defendant labeled them as independent contractors not only to avoid providing Plaintiffs with the protections of California’s labor laws, but alsoto: (1) escape numeroustax obligations; (2) evade workers’ compensations laws; and (3) to avoid liability for any damages or injuries caused by thecarriers to third parties. This is exactly the type of irregular working relationship that reeks of subterfuge and evasion and which the IWC Wage Orders govern. In sum, the IWC providedthree alternative definitions of employer. Defendant’s argumentthat twoofthe definitions must be ignoredis in direct contravention of Martinez: One cannotoverstate the impact of such a holding on the IWC’s powers. Were we to define employmentexclusively according to the commonlaw in civil actionsfor unpaid wages we would render the commission’s definitions effectively meaningless. Id. at 65 (Emphasis added). 3 Hutton Centre Drive - Ninth Floor Santa Ana, CA 92707 - (714) 241-4444 - Fax (714) 241-4445 + www.callahan-law.com CALLAHAN&BLAINE www.callahan-law.com ~”California'sPremier LitigationFirm™ Clerk, Supreme Court of California August 15, 2013 Page 3 The IWC WageOrders were intended to govern over not only common law employmentrelationships, but also irregular working relationships such asthat involved here where a business designates an essential componentofits labor force as independent contractors. Il. ARGUMENT A. The Supreme Court Hasthe Authority to Decide the Issue Presented Contrary to Defendant’s argument, the Court has the authority to address the relevance ofMartinez and the applicable Wage Orders: The [S]upreme [C]ourt’s power of decision extendsto any issues presented by the case (CRC 8.516(b)(2)); hence; whether new issues will be considered lies completely within the court’s discretion. [See People v. Braxton (2004) 34 C4th 798, 809; Cedars-Sinai Med. Ctr. v. Super. Ct. (Bowyer) (1998) 18 Cal.4th 1, 5-7; see also People v. Birks (1998) 19 Cal.4th 108, 116, fn. 6 — argumentthat supreme court precedent should be overruled not waived byfailing to raise argument in court of appeal, because court of appeal cannot overrule supreme court precedent] Eisenberg, Horvitz, Wiener, Cal. Prac. Guide: Civ. Appeals & Writs, Ch. 13-A, § 13:14. Further, the Court can also order review sua sponte. Id. at § 13:22. As explained below,the significance ofMartinez regarding both the protections that California’s workers are provided and also the impact it has on class actions involving the issue of independent contractor versus employee misclassification is tremendous. Assuch, Plaintiffs respectfully submit that this issue should be addressed by the Court. 3, Hutton Centre Drive - Ninth Floor « Santa Ana, CA 92707 - (714) 241-4444 + Fax (714) 241-4445 - www.callahan-law.com CALLAHAN& BLAINE www.callahan-law.com Califorhia’s Premier Litigation Firm Clerk, Supreme Court of California August 15, 2013 Page 4 B. Plaintiffs Do Not Dispute that the Common Law Test Is One of Three Definitions of “Employer” Under the Applicable [WC Wage Order, Andthe Court of Appeal Properly Held that the Class Should Have Been Certified Under this Definition As explained in Plaintiffs’ Opening Brief, Plaintiffs do not argue that the common law definition of employer is not incorporated into the applicable [WC Wage Order. Under Martinez, however, it is only one of three alternative tests that can be used. See Martinez, 49 Cal.4th at 64 (“This conclusion makes sense because the IWC,even while extending its regulatory protection to workers whose employment status the common law did not recognize, could not have intended to withhold protection from the regularly hired employees who undoubtedly comprisethe vast majority of the state’s workforce.”). Thus, Martinez held that the IWC Wage Orders’ definition of employeris not limited to the commonlaw definition. As explained below, Martinez recognized that the Wage Orders were intentionally designed “to reach irregular working arrangementsthat f[a]ll outside of the commonlaw.” Id. at 58 (Emphasis added). C. Martinez Holds that the IWC Wage Orders Apply Broadly to Reach Irregular Working Relationships, Such as Where A Business Labels Its Workforce as Independent Contractors Martinez recognized that IWC Wage Orders were intended to be applied broadly: Section 1194 is the direct successor of, and its operative language comes immediately from, section 13 of the uncodified 1913 act (Stats, 1913, ch. 324, Section 13, p. 637) that created the IWC and delegated to it the powerto fix minimum wages, maximum hours and standard conditions of laborfor workers in California. Id. at 52 (Emphasis added).' 'In particular, the IWC wascreated and given “broad authority to regulate the hours, wages and labor conditions ofwomen and minors. (Stats. 1913, Ch. 324)...” Martinez, 49 Cal.4th at54. Eventually, its protections were expanded to applyto all workers in California. 3 Hutton Centre Drive - Ninth Floor - Santa Ana, CA 92707 - (714) 241-4444 - Fax (714) 241-4445 - www.callahan-law.com CALLAHAN&BLAIN]E : www.callahan-law.com Califor'aia’sPremier Litigation Firm™ Clerk, Supreme Court of California August 15, 2013 Page 5 Underthis broad authority, the IWC has the powerto define the employment relationship: Consistent with these deferential principles of review, we have repeatedly enforced definitional provisions the IWC has deemed necessary, in the exercise of its statutory and constitutional authority [Citations], to make its wage orderseffective, to ensure that wagesare actually received, and to prevent evasion and subterfuge. [Citation]. 2k As. we have now shown, an examination of section 1194 in its full historical and statutory context shows unmistakably thatthe Legislature intendedto defer to the IWC’s definition ofthe employmentrelationship in actions underthe statute. The Legislature has delegated to the IWC broad authority over wages, hours and working conditions [Citation], the voters have repeatedlyratified that delegation [Citations], and we have confirmedthat “[t]he powerto fix [the minimum] wage does not confine the [IWC]to the single act. It may adoptrules to makeit effective” [Citation]. The power to adopt rules to make the minimum wageeffective includes the powerto define the employmentrelationship as necessary “to insure the receipt of the minimum wage andto prevent evasion and subterfuge...” [Citation]. Id. at 61-62, 64 (Emphasis added). Given this broad authority, the [WC Wage Orders were designed to reach well beyond thetraditional common law employee/employerrelationship: The IWC’sfirst wage order, adopted in 1916, contained no separate definition of the term “employ,” but various substantive provisions imposing duties on employers began with language like that the [WCstill uses todayin all of its industry and occupation wageorders to define the term. For example: “No person, firm or corporation shall employ or suffer to permit any womanor minors to work in the fruit and vegetable canning 3 Hutton Centre Drive - Ninth Floor * Santa Ana, CA 92707- (714) 241-4444 - Fax (714) 241-4445 - www.callahan-law.com CALLAHAN&BLAINE . www.callahan-law.com California'sPremier Litigation Firm™ Clerk, Supreme Court of California August 15, 2013 Page 6 industry in any occupation at timerates less than the following....” (IWC former wage order No. 1, Section 2,italics © added;see, e.g., Wage Order No. 14, Cal. Code Regs,tit. 8, Section 11140 2(c) [“ ‘Employ’ means to engage suffer orpermit to work’(italics added).) The chosen language was especially apt in an order intended to regulate the employment ofwomen and minors becauseit was already in use throughout the country in statutes regulating and prohibiting child labor (and occasionally that of women)[Footnote omitted] having been recommended for that purpose in several model child labor laws published between 1904 and 1912 (see Rutherford Food Corp.v. McComb(1947) 331 U.S. 722, 728 n. 7.) The language had been interpreted to impose criminalliabilityfor employing children, or civil liabilityfor their industrialinjuries, even when no common law employmentrelationship existed between the minorand the defendant, based on the defendant’s failure to exercise reasonable care to prevent child labor from occurring. Not requiring a commonlaw master andservant relationship, the widely used “employ, suffer orpermit” standard reached irregular working arrangements the proprietor ofa business might otherwise disavow with impunity. Id. at 57-58 (Emphasis addedin part). The Martinez court further explained that the IWC Wage Orders were designed to insure the protection of California’s workers regardless ofhow an employerlabeled Results such as these, while foreign to the common law, were generally understood as appropriate underchild laborstatutes _ that included the “employ, suffer or permit” standard. As one state supremecourt explained, “/i//fthestatute went nofarther than to prohibit employment, then it could be easily evaded by the claim that the child was not employedto do the work which caused the injury, but that he did it of his own choice and athis ownrisk; andif it prohibited only the employment and permitting a child to do such things,then it mightstill be evaded 3 Hutton Centre Drive « Ninth Floor « Santa Ana, CA 92707 - (714) 241-4444 « Fax (714) 241-4445 » www.callahan-law.com www.callahan-law.com Clerk, Supreme Court of California August 15, 2013 Page 7 by the claim that he was not employed to do such work, nor was permission given him to do so. But the statute goes farther, and makesuse ofa term even strong than the term “permitted.” It says that he shall be neither employed, permitted, nor suffered to engage in certain works.” [Citation]. The standard thus meant that the employer “shall not employ by contract, nor shall he permit by acquiescence, nor suffer by afailure to hinder.” [Citation]. Similarly, another state supreme court rejected the employer’s argumentthat the standard could “only apply when the relation of master and servantactually exists.” [Citation]. “To put [such a] construction onthis statute ... would leave the words ‘permitted or suffered to work’practically without _ meaning. It is the child’s working that isforbidden by the statute, and nothis hiring.... Id. at 58-59 (Emphasis addedin part). Thus, Martinez clearly held that the IWC’sdefinition of employeris far broader than that of the commonlaw,andthat broad definition must be enforced: While the common law definition of employmentplays an important role in the wage orders’ definition, and thus also in actions undersection 1194, to apply only the common law definition while ignoring the rest of the IWC’s broad regulatory definition would substantially impair the commission’s authority and the effectiveness of its wage orders. The commission,as noted, has the power to adopt rules to make the minimum wage “effective” by “prevent[ing] evasion and subterfuge...” [Citation]. We have repeatedly upheld the commission’s exercise of this authority. [Citation]. Furthermore, language consistently used by the IWC to define the employment relationship, beginning with its first wage order in 1916 (“suffer, or permit”) was commonly understoodto reach irregular working arrangementsthatfell outside the commonlaw,having been drawn from statutes governing child labor and occasionally that of women.[citation]. For the IWC, created as it was to regulate the employment ofwomen and minors, to use this language to define the employmentrelations was thus uniquely 3 Hutton Centre Drive - Ninth Floor - Santa Ana, CA 92707 - (714) 241-4444 + Fax (714) 241-4445 - www.callahan-law.com CALLAH.AN & BLAINE www.callahan-law.com “California's5:Premier Litigation Firn™ Clerk, Supreme Court of California August 15, 2013 Page 8 appropriate. To adopt such a definitional provisionalso lay squarely within the IWC’s power, asthe provision has “a direct relation to minimum wages”[Citation] and is reasonably necessary to effectuate the purposesofthe statute [Citations]. For a court to refuse to enforce such a provision in a presumptively valid wage order [Citation] simply becauseit differsfrom the common law would thus endangerthe commission’s ability to achieve its statutory purposes. Id. at 65 (Emphasis added). Martinez emphasized the tremendous scopeofthe definition of employer under the IWC Wage Orders and the significance it has on the protections affordedtoall workers, not just common law employees: One cannot overstate the impact ofsuch a holding on the IWC’s powers. Were weto define employment exclusively according to the commonlaw in civil actions for unpaid wages we would render the commission’s definitions effectively meaningless. Id. (Emphasis added). In cases such as ours involving independent contractor misclassification, the impact is clear. When a business labelsall or a significant portion of its labor force as independentcontractors, these workers fall under the protections of the [WC’s Wage Orders. As explained in more detail below, the business clearly exercises control over the wages, hours or working conditions of the workers, andit suffers or permits them to work. Therefore, they are employees under the IWC’s definition and are entitled to — the protections of the [WC’s Wage Orders. Here, the subterfuge and evasion that Defendant has engagedin are exactly what the Wage Orders are designed to prevent. Defendant has ignored findings by an administrative law judge and the California Court ofAppealthat its carriers are employees. Defendant knowingly continues to denyits carriers the protections they are entitled to under the Labor Code and the [WC Wage Orders. The IWC Wage Orders’ broad definition of employer must be respected such that employees can participate in class actions such as ours in order to prevent businesses from evading the obligations they have to comply with California’s labor laws. 3 Hutton Centre Drive - Ninth Floor « Santa Ana, CA 92707 - (714) 241-4444 + Fax (714) 241-4445 + www.callahan-law.com CALLAHAN&BLAINE wrww.callahan-law.com "California'sPremier Litigation Firm™ Clerk, Supreme Court of California August 15, 2013 Page 9 D. The [WC’s Wage Orders Are Not Too Blunt of Instruments Defendant argues that the IWC Wage Order’s definition of employmentis “too blunt an instrument” to regulate California workers. This argumentfails as it is based upon an incorrect statement of the purpose and scope of the IWC’s Wage Orders’ three alternative definitions. Defendant’s argumentis based on the faulty premise that independent contractors could neverfall under the auspices of the IWC’s Wage Orders. This is incorrect. Martinez makesclear that the IWC wasdesigned to govern not only common law employmentrelationships, but also other “irregular working relationships.” Thus, the IWC WageOrders’ two alternative definitions ofwho is an employer,i.e., “(a) to exercise control over the wages, hours or working conditions, (b) to suffer or permit to work”are designed to protect a broad spectrum ofworkers. This would include independent contractors that serve as a business’ substantial workforce and provide the sameservices as employees would provide. The IWC Wage Orders recognize that these workers are entitled to the same protectionsas traditional common law employees, and that schemesto avoid these protections will not be tolerated. Contrary to Defendant’s argument, however, the fact that the IWC’s three alternative definitions are applicable to the facts of our case does not mean that“there would be no such thing as an independent contractor in California for wage law purposes...” The statutory history of the Wage Orders’ definition detailed the type of — independent contractorrelationships that the IWC would have authority over, and those it would not. For example, the “suffer or permit” standard is intended to “reach[] irregular working arrangements the proprietor of a business might otherwise disavow with impunity.” Martinez, 49 Cal.4th at 58 (Emphasis added). Thus, the definitions are intended to reach “working arrangements” where a worker assumesthe responsibilities that an employee would. For example, in our case we have an entire workforce ofcarriers that perform the essential task of delivering Defendant’s newspaper. Thesecarriers serve the same purpose as an employee workforce. In contrast, using Defendant’s example, a house painter whois hired to spend a weekpainting a house and has “his own employees, supplies his owntools, advertises his business, serves many different customers, and comesfor a few hours each day at times of his choice” does notfall under the “suffers or permits” standard. This is a 3 Hutton Centre Drive - Ninth Floor - Santa Ana, CA 92707 - (714) 241-4444 + Fax (714) 241-4445 - www.callahan-law.com CALLAHAN&. ~ ”California’+PremierLitigation www.callahan-law.com Clerk, Supreme Court of California August 15, 2013 Page 10 one-time service relationship, and not the “irregular working relationship” where the painter is hired to serve as part of a large workforce and as the equivalent of an employee. The samelimitation logically extends to the “control over wages, hours, or working conditions”alternative definition. It does not apply to a contractor whois hired to perform a discrete task. Instead, the definition uses the terms “wages” and “working conditions” that are indicative of a working relationship where the laboreris performing tasks that an employee would. Thus, Defendant’s example of the freelance web designer who wascontracted to redesign a company’s website with the understanding that this was “a project” that would take “a certain number of hours” would not be an employee. This again would be a limited one-time service relationship. In contrast, where the newspapercarriers are expected to serve as the permanent workforce of Defendant, and where Defendantis involved in every aspect of the carriers’ job, including the hours they work, the money they are paid, and the working conditions of their difficult job, this is exactly they type of working relationship the IWC Wage Ordersare intended to govern. In sum, the IWC Wage Orders are designed to protect California’s workers. This is true whether the workers are common law employees or whetherthey are independent contractors whoserveas a business’ workforce. E. To Hold Otherwise Would Prevent the [WC’s Wage Orders from Effectuating Their Statutory Purposes And Would Render the Wage Orders’ Definitions Meaningless Asthe Martinez Court explained, the [WC’s definition of employer cannot be ignored, “[w]ere we to define employment exclusively according to the common law in civil actions for unpaid wages we would render the Commission’s definitions effectively meaningless.” Jd. at 65. The Court recognized that the IWC has broad authority and as such,it has “repeatedly enforced definitional provisions the IWC has deemednecessary, in the exercise of its statutory and constitutional authority [Citations], to make its wage orders effective...and to prevent evasion and subterfuge. [Citation].” Jd. at 61-62. As explainedin Plaintiffs’ Opening Brief on the Merits and the Amicus Curiae Brief of the Asian Law Caucusef al., evasion and subterfuge are exactly what Defendant has engaged in for years. To allow Defendantto proceed 3 Hutton Centre Drive » Ninth Floor - Santa Ana, CA 92707 - (714) 241-4444 - Fax (714) 241-4445 + www.callahan-law.com CAL 1 AHAN& BLAINE www.callahan-law.com California's Premier Litigation Firm" Clerk, Supreme Court of California August 15, 2013 Page 11 with its evasion of California’s labor laws would be directly contrary to the purpose of the Wage Orders. Thus, the Court cannot limit the [WC’s authority to only common law employmentrelationships and ignore the other alternative tests as Defendant argues: As we have now shown,an examination of section 1194in its full historical and statutory context shows unmistakably that the Legislature intended to defer to the IWC’s definition ofthe employmentrelationship... The Legislature has delegatedto the IWCbroad authority over wages, hours and working conditions [Citation], the voters have repeatedly ratified that delegation [Citations]... The power to adopt rules to make the minimum wageeffective includes the power to define the employment relationship as necessary “to insure the receipt of the minimum _ wage andto prevent evasion and subterfuge....” [Citation]. Here, Defendantis asking the Court to ignore twoofthe three alternative definitions of employer provided by the IWC Wage Order. Such an argumentdirectly conflicts with the Court’s pronouncement in Martinez, and would render the IWC Wage Orders’ definition of “employer” meaningless. Such an argument, if adopted, wouldgive the green light to businesses, such as Defendant, to carry on with impunity their illegal schemes and their evasion of the law. F. Martinez Recognized the Limitations of Each Definition The Martinez Court recognized that the [WC Wage Orders’ definitions are not limitless and have.to be viewed with both their historical meaning andtheir statutory purpose. Forthe “suffer, or permit to work test”, the Court describedits “highly relevant”“historical meaning”as,“{a] proprietor who knowsthat persons are working in his or her business without having beenformally hired, or while being paid less than the minimum wage,clearly suffers or permits that work by failing to preventit, while having the powerto do so.” Jd. at 69 (Emphasis added). The Court thus found that there were clear limits to who can suffer or permit a laborer to work and rejected the “downstream-benefit theory ofliability” under which any substantial purchaser of commodities who might be able to force others to change howtheytreat their workers by withdrawing their business wouldbe held liable as employers. Jd. at 70-71. 3 Hutton Centre Drive : Ninth Floor - Santa Ana, CA 92707 - (714) 241-4444 - Fax (714) 241-4445 + www.callahan-law.com CALLAHAN&BLAINE www.callahan-law.com "~~ California's Premier Litigation Firm™ Clerk, Supreme Court of California August 15, 2013 Page 12 With regard to the “exercises control over ... wages, hours, or working conditions....”, the Martinez Court also recognized that a mere businessrelationship with an employer wasnot enoughto be able to “exercise control” over wages, hours, or working conditions. Instead, the Martinez Court looked at the facts and foundthat it was the actual employer, not the business partner, who controlled all of these aspects. Id. at 72-73. In sum, Martinez does not create endlessliability or hold that no independent contractor relationships can exist free ofthe[WC’s governance. Instead, it provided definitions which delineate who is an employer and serve the purpose of allowing the IWC Wage Orders to protect California’s workers. As always,in the end it will be left to the trier of fact to determine if an employmentrelationship exists. A plaintiff, however, can meet its burden by establishing employment underoneofthree of the IWC’salternative definitions of “employer.” G. Employers in 1918 Who Designated Their Female Employees as Independent Contractors Would Not Escape the IWC Wage Orders The following hypothetical illustrates that the Legislature intended the IWC Wage Orders to apply to independent contractors when it enacted the IWC in 1916. In 1918, two years after the [WC’sfirst wage order, a fruit cannery business (“the business”) decided that it would labelall of its female employees as independent ‘contractors and then pay them 33% less than the minimum wage. These women continued to perform the same essential function for the fruit cannery, but now were independent contractors making less than the minimum wage. Onebrave female worker complains to the IWC and,in response to the [WC’s investigation, the business says that the IWC has nojurisdiction over its female workers because they are all independent contractors. They are not employees, and we do not have to provide any protections under the Labor Code or IWC Wage Orders,let alone pay them a minimum wage. If these women want to make the same as men, they can work a 65 hour work week.’ 2 This exampleis notall that different than the actions of Defendant whohasignored a Court of Appeal decision finding that it has misclassified all of its carriers as independent contractors. 3 Hutton Centre Drive - Ninth Floor « Santa Ana, CA 92707 + (714) 241-4444 + Fax (714) 241-4445 - www.callahan-law.com CA!LLAHAN & BLAINE www.callahan-law.com California’§sPremier‘Litigation Firm Clerk, Supreme Court of California August 15, 2013 Page 13 Asthe Martinez Court so painstakingly explained, there is no way the [WC would have agreed with this position. The IWC madesure that its definition of employer would reachirregular working relationships and that it would have the broad authority to regulate the hours, wages and labor conditions ofwomen and minors. Id. at 54. The Wage Orders were designed to protect “this weakest and helpless class” as the “substandard wages [they were paid] frequently ledtoill health and moral degeneracy.” Jd. The IWC wascharged with “ascertain[ing] the wages paid, the hours andconditions of labor” of womenin the State and to make sure they were paid a sufficient wage to “maintain their health and welfare” and also to regulate their hours to ensure that their health and well-being were protected. Thus, it would be of no consequencethat these women wereclassified as independent contractors. This would be exactly the type of “evasion”, “subterfuge”, and “sham” arrangement that the Wage Orders were designed to prevent, and why the IWC defined employer so broadly.’ Now,travel forward to today where the [WC appliesto all persons; men or women.’ Wehaveentire industries, such as the newspaperindustry, where businesses have labeledall of their work force as independent contractors for the purpose of avoiding havingto pay taxes, to evade having to provide the protections of California’s labor laws, and to avoidliability when their workers harm innocent third parties (for example, when a newspapercarrier crashestheir car into a pedestrian). In other instances, entire industries have, overnight, converted whole workforces from employees to independentcontractors, all for the sake of profit. These workers, however, provide the exact sameservices that employees would. In our case, these newspapercarriers serve the vital function of delivering Defendant’s newspaper. 3 “Once the IWC determinedthat‘in any occupation,trade, or industry, the wages paid to employees [were] inadequate to supply the cost of properliving’ or that “the hours or conditions of labor [were] prejudicial to the health, morals, or welfare of employees’ [Citation], it was empoweredto formulate wage orders to govern minimum wages, maximum hours, and overtime pay for such occupation,trade or industry. [Citations].” See Mendiola v. CPS Security Solutions, Inc., - - - Cal.Rptr.3d - - -, 2013 WL 3356998 * 6 (2013) 4 See Mendiola, 2013 WL 3356998 * 5 (“Legislation enacted in 1973 directed the IWC to ‘continually ... review and... update its rules, regulations and policies to the extent found by[it] to be necessary to provide adequate and reasonable wages,hours, and working conditions appropriate for all employees in the modern society.’ [Citation].”). Of course,this is left up to the DLSEandprivate parties as the IWC was defunded in 2004. Id. at * 1, fn. 3. 3 Hutton Centre Drive + Ninth Floor « Santa Ana, CA 92707 - (714) 241-4444 - Fax (714) 241-4445 + www.callahan-law.com CALLAHAN& BLAINE www.callahan-law.com Califotnia’sPremierLitigation Firm" Clerk, Supreme Court of California August 15, 2013 Page 14 Without this reliable, hardworking labor force, Defendant’s business could never function. Instead of valuing this work, however, Defendantclassifies these carriers as independentcontractors for the sole purpose of saving a buck. They provide them with none ofthe protections of California’s labor laws, such as a guaranteed minimum wage, mealandrest breaks, overtime, or reimbursement for their business expenses. Such an arrangementis exactly what the IWC’s broad definition of employeris designed to prevent — the irregular working relationship where the business reapsall of the benefits of having a steady workforce without having to provide any benefits or protections. Instead, these carriers are employees undereither the “suffer or permit” test, or the “exercises control over the wages, hours, or working conditions...” test. In sum, these independent contractors fall under the !WC’sauthority to ensure that California’s workers are provided fair wages, work reasonable hours, and are not subjected to harsh working conditions.° H. Upon Further Examination, Plaintiffs Conclude that Borello Really Plays No Part In the Employee Versus Independent Contractor Determination Where There Is an Applicable Wage Order Plaintiffs movedfor class certification under Borello, and the Court of Appeal correctly recognized that Plaintiffs provided substantial commonevidenceto determine whether Plaintiffs were misclassified as independent contractors under Borello’s principal right to control test and the various secondary factors. Plaintiffs concede, however, that this was unnecessary. The IWC Wage Orderis comprised of three alternative tests, one of which is the traditional common law test of employment. This common law employmenttest, however, was only provided as a point of clarification in order to make expressly clear that theIWC applied to traditional employees. The twoalternative tests were intended to be much broader: This conclusion makes sense because the IWC, even while extending its regulatory protection to workers whose employment status the common did not recognize, could not have intended to withhold protection from the regularly hired ~ employees who undoubtedly comprise the vast majority of the > As the Court can well imagine, newspapercarriers are generally of a low socio-economic status and are an easy targetto exploit. Just like women andchildren in the early 1900's, they need the protections of the IWC’s Wage Orders. 3 Hutton Centre Drive - Ninth Floor * Santa Ana, CA 92707 - (714) 241-4444 - Fax (714) 241-4445 + www.callahan-law.com CALLAHAN&BLAINE www.callahan-law.com "California'sPremicrLitigation Firm™ Clerk, Supreme Court of California August 15, 2013 Page 15 state’s workforce. To employ, then, under the [WC’s definition, has three alternative definitions. It means:(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work,or (c) to engage, thereby creating a common law employmentrelationship. Id. at 64 (Emphasisin original). Plaintiffs, by providing substantial common evidence on the Borello factors, clearly showedthat class certification was warranted under the much broader alternative tests, along with the common law definition.® I. Martinez MakesClear that Class Certification Cases Involving the Independent Contractor Versus Employee Misclassification Issue Should Be Certified Martinez’ impacton class actions involving the issue of independent contractor misclassification is tremendous. Martinez holds that when businessesutilize an independent contractor work force, those independent contractors are considered employees under the IWC Wage Orders. Thus,plaintiffs at the class certification stage do nothaveto present evidence to show that a common law employment relationshipsexists. Instead,if they so chose, they can present commonevidence in support of Martinez’ twoalternative definitions of employment: (1) “to exercise control over the wages, hours or working conditions”or (2) “to suffer or permit to work”. Providing commonevidence in support of either of these broad definitionsis muchless burdensomethan that required to show an employmentrelationship under the commonlaw test and, therefore, the class certification standards will be much easier to satisfy. 6 Plaintiffs understand the Martinez Court’s caution that it was not deciding whether Borello has any relevance to wage claims, andthat any argument that workers were employees underthe Borello test is an “approach notbased on the applicable wage order.” Jd. at 72-73. Thereality is that there is no need to apply the Borello test, as a plaintiff will almost certainly proceed underthe much morebroadly defined alternativetests. 3 Hutton Centre Drive « Ninth Floor « Santa Ana, CA 92707 - (714) 241-4444 - Fax (714) 241-4445 + www.callahan-law.com CALLAHAN &BLAINE www.callahan-law.com » Califorhia’s Premier LitigationFirm™ Clerk, Supreme Court of California August 15, 2013 Page 16 J. Plaintiffs Believe All Three of the Alternative Definitions Are Relevant In their OpeningBrief, Plaintiffs stated. that only two of the IWC’s alternative definitions were relevant to the issues involved in this case. Plaintiffs have reconsidered this position and now believeall three alternative definitions apply and that Plaintiffs would be employees under all three of the definitions. More importantly, in the future plaintiffs in class actions involving the issue of independent contractor misclassification will almost certainly seek class certification underall three alternative definitions. Il. CONCLUSION Martinez holds that the IWC’s wage orders are intended to reach irregular working relationships such as ones where a defendanthas labeled its workforce as independent contractors. These broad definitions must be enforced, and the protections of the IWC WageOrders should be provided to all workers in California as the IWCintended. | Very truly yours, K/y— Scott D. Nelson SDN:er G:\Clients\2926\2926-02\APPEAL\Correspondence\Reply Letter Brief to Supreme Court re Martinez FINAL.wpd 3 Hutton Centre Drive - Ninth Floor « Santa Ana, CA 92707 - (714) 241-4444 + Fax (714) 241-4445 - www.callahan-law.com PROOF OF SERVICE Ayala, et al., v. Antelope Valley Newspapers.et al. Court of Appeal Case No. B235484 Supreme Court Case No. S206874 I am employed in the County of Orange, State of California. I am over the age of 18 and not a party to the within action. My business address is 3 Hutton Centre Drive, Ninth Floor, Santa Ana, California 92707. On August 15, 2013, I served the foregoing document(s) entitled: PLAINTIFFS’ REPLY LETTER BRIEF TO THE SUPREME COURT OF CALIFORNIA RE: MARTINEZ V. COMBS on the interested parties in this action by placing [ ] the original [X] a true copy’ . thereof enclosed in a sealed envelope addressed as follows: SEE ATTACHED SERVICELIST [X] BY FEDEX:I deposited such envelope at Santa Ana, California for collection and delivery by Federal Express with delivery fees paid or provided for in accordance with ordinary business practices. I am "readily familiar" with the firm's practice of collection and processing packages for overnight delivery by Federal Express. They are deposited with a facility regularly maintained by Federal Express for receipt on the same dayin the ordinary course of business. [X] BY MAIL:I deposited such envelope in the mail at Santa Ana, California. The envelope was mailed with postage thereon fully prepaid. I am "readily familiar" with the firm's practice of collection and processing correspondence for mailing. It is deposited with the United States Postal Service on that same day in the ordinary course of business. I am aware that on motion ofparty served, service is presumed invalid if postal cancellation date or postage meter date is more than one (1) day after date of deposit for mailing in affidavit. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed ofj/Au 2013, at Santa Ana, California. Elena Richards erichards@callahan-law.com Ayala, et al., v. Antelope Valley Newspapers,et al. Court of Appeal Case No. B235484 Supreme Court Case No. 8206874 SERVICE LIST Sue J. Stott PERKINS COIE 4 Embarcadero Center, Suite 2400 San Francisco, CA 94111 (415) 344-7000 (415) 344-7050 Fax sstott@perkinscoie.com Eric D. Miller PERKINS COIE 1201 Third Avenue, Suite 4900 Seattle, WA 98101-3099 (206) 359-8000 (206) 359-7338 Fax emiller@perkinscoie.com California Court ofAppeal Second Appellate District, Division 4 Ronald Reagan State Building 300 S. Spring Street 2nd Floor, North Tower Los Angeles, CA 90013 Judge John Shepard Wiley Los Angeles Superior Court Central Civil West Courthouse Dept. 311 600 South Commonwealth Ave. Los Angeles, CA 90005 Camille Annette Olson Seyfarth Shaw LLP 131 South Dearborn Street, #2400 Chicago, IL 60603 Attorneys for Defendant-Respondent ANTELOPE VALLEY NEWSPAPERS,INC. By FedEx Attorneys for Defendant-Respondent ANTELOPE VALLEY NEWSPAPERS,INC. By FedEx By U.S. Mail By U.S. Mail The California Chamberof . Commerce and The California Employment Law Council: Amicus curiae Courtesy Copy By U.S. Mail David D. Kadue ~ Seyfarth Shaw, LLP 2029 Century Park East, Suite 3500 Los Angeles, CA 90067 Della Barnett. Impact Fund 125 University Avenue, Suite 102 Berkeley, CA 94710-1616 Fernando Flores Legal Aid Society 180 Montgomery Street, Suite 600 San Francisco, CA 94104 Aaron David Kaufmann 1330 Broadway, Suite 1450 Oakland, CA 94612 The California Chamber of Commerce and The California Employment Law Council: Amicus curiae Courtesy Copy By U.S. Mail Asian Law Caucus; Centro Legal de La Raza; Equal Rights Advocates; Impact Fund; La Raza Centro Legal; Lawyers' Committee for Civil Rights; Legal Aid Society - Employment Law Center; National Employment Law Project; Public Justice, P.C.; Wage Justice Center; Watsonville Law Center; Western Center on Law and Poverty; Women's Employment Rights Clinic at Golden Gate University School of Law; Worksafe: Amicus curiae Courtesy Copy By U.S. Mail Asian Law Caucus; Centro Legal de La Raza; Equal Rights Advocates; Impact Fund; La Raza Centro Legal; Lawyers' Committee for Civil Rights; Legal Aid Society - Employment Law Center; National Employment Law Project; Public Justice, P.C.; Wage Justice Center; Watsonville Law Center; Western Center.on Law and Poverty; Women's Employment Rights Clinic at Golden Gate University School of Law; Worksafe: Amicus curiae Courtesy Copy By U.S. Mail | California Employment Lawyers Association: Amicus curiae Courtesy Copy By U.S. Mail
