AYALA v. ANTELOPE VALLEY NEWSPAPERS

Respondent’s Supplemental Reply Letter Brief

Cal.August 15, 2013

Perkins Cole Four Embarcadero Center, Suite 2400 San Francisco, CA 94111-4131 Sue J. Stott pHone 415.344.7061 Fax. 415.344.7261 emai. SStott@perkinscoie.com PHONE: 415-344-7000 FAX: 415-344-7050 www.perkinscoie.com FILCOURT August 15, 2013 E D AUG 15 2013 Honorable Chief Justice Tani Cantil-Sakauye And Associate Justices Frank A. McGuire Clerk California Supreme Court " 350 McAllister Street Deputy San Francisco, CA 94102 Re: Maria Ayala etal. v. Antelope Valley Newspapers, Inc., No. S206874 To the Honorable Chief Justice and Associate Justices: Defendant and Respondent Antelope Valley Newspapers, Inc. (“AVP”) respectfully submits this supplementalletter brief in reply to the letter brief submitted by Plaintiffs and Appellants. Plaintiffs barely acknowledge the key issues presented by the Court’s request for briefing on Martinez v. Combs (2010) 49 Cal.4th 35 (Martinez), and [WC wageorder No. 1-2001, subdivision 2(D)-(F) (Cal. Code Regs., tit. 8, § 11010, subd. 2(D)-(F)) (“the Wage Order’). Put simply, those issues are (1) do Martinez and the Wage Order govern the determination of independent contractor status; and (2) if so, do they have any relevance to this appeal, given that plaintiffs failed to raise either of them below? The answerto both questions is no. Martinez is not relevant to the narrow issue before this Court, which is whether the Court of Appeal misapplied S.G. Borello & Sons, Inc. v. Dept. ofIndus. Relations (1989) 48 Cal.3d 341 (Borello), in reversing the trial court’s denial of plaintiffs’ motion for class certification. A. The Wage Order’s definitions of “employ” do not govern the determination of independentcontractor status As AVP’s letter brief explained, Martinez and Borello answer two different questions. To be an employer’s employee, a person must (1) be employed by that employer, rather than exclusively by someother employer, and (2) be an employee and not an independent contractor. In Martinez, the Court construed the Wage Orderto addressthe first of those issues. Martinez was not an independent contractor case, andit did not address the standard under whicha personis determined to be an independent contractor or employee. That question is governed by Borello. While Martinez has an importantrole to play in manycases,it will not generally be relevant in LEGAL27595 106.1 ANCHORAGE - BEISING- BELLEVUE BOISE CHICAGO. DALLAS - DENVER - LOS ANGELES MADISON - NEW YORK PALO ALTG - PHOENIX PORTLAND - SAN DIEGO. SAN FRANCISCO SEATTLE - SHANGHAI: - TAIPE!-. WASHINGTON, D.C. Perkins Coie Lip Honorable Chief Justice Tani Cantil-Sakauye August 15, 2013 Page 2 cases of alleged misclassification, in whichthe parties typically will not dispute that services were performedbythe plaintiff for the defendant. Nowherein theirletter brief do plaintiffs provide any analysis of how Martinez and Borello work together. Nor haveplaintiffs provided such an analysis anywhereelse, for they have never previously argued that either Martinez or the Wage Order has any relevanceto the class certification decision at issue here. Instead, as both parties argued below,andasthetrial court and Court of Appeal recognizedin their respective orders, Borello controls the threshold dispute on the merits of this case, which is whetherthe plaintiffs are employees or independent contractors. The parties’ treatment of the issue was consistent with decadesof authority both before and after Borello. Extending Martinez into the independent contractor context would upendthat authority and would effectively forbid the use of independent contractors in California. That would be a radical changein the law,andit is in no way suggested, let alone mandated, by Martinez. It is thus no surprise that plaintiffs do not address the real implications of displacing the Borellotest with the Wage Order definitions discussed in Martinez. 1. Plaintiffs do not even attempt to explain how the “suffer or permit” definition could apply in the independentcontractor context Under the Wage Order, as explained in Martinez, a person may be the “employee” of another under any ofthree definitions. “To employ”, the Court said, “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.” (Martinez, supra, 49 Cal.4th at p. 64 [emphasisin original].) The Court emphasized the disjunctive relationship among the three components of the test not only by repeating—anditalicizing—the word “or”but also by describing the three components as “alternative definitions.” (/bid.) Where the Wage Order definitions apply, each of the three must be applied in turn, and if any oneis satisfied, then the worker is an “employee.” (See, e.g., Aleksick v. 7-Eleven, Inc. (2012) 205 Cal.App.4th 1176, 1190 [applying Martinez, and considering each ofthe three definitions to determine whether plaintiff was an “employee”of defendant]; Futrell v. Payday California, Inc. (2010) 190 Cal.App.4th 1419, 1431-35 [same].) Plaintiffs now assert that the Wage Order’s “three definitions . . . control whether Plaintiffs are, in fact, Defendant’s employees.” (Pls.’ Ltr. Br. at p. 2.) If that were true, one would expect plaintiffs to begin with the Wage Order’s broadest and most sweeping definition of “employ”— to “suffer or permit” to work. There is no dispute that AVP entered into independent contractor agreements under which carriers performed services for AVP. If the “suffered” and “permitted” definition governed the determination of independent contractor status, one would expect plaintiffs to argue that fact alone shows AVP “suffered” and “permitted”carriers to work. But LEGAL27595106.1 Honorable Chief Justice Tani Cantil-Sakauye August 15, 2013 Page 3 plaintiffs apparently lack the courage oftheir convictions, for they do not discuss the “suffer or permit” definition or attempt to explain howit could be usedto distinguish employees from independentcontractors. Instead, they claim that only the two other alternative definitions of “employ”are of“importance to our case.” (/d. at p. 12.) Plaintiffs’ silence speaks volumes. There is only one explanation for plaintiffs’ unwillingness to address the “suffer or permit” definition. Plaintiffs must recognize that applying the “suffer or permit” definition in the independent contractor context would be absurd, becauseif “suffer or permit” defines “employee”status, then it is hard to see how any worker could ever be an independent contractor. The touchstone ofliability under the “suffer or permit” standard “is the defendant’s knowledge of and failure to prevent the work from occurring.” (Martinez, supra, 49 Cal.4th at p. 70 [emphasis omitted].) But whenevera service recipient enters into a contract with a service provider, it knowsthat the service provider will be performing work, and it chooses notto “prevent the work from occurring” because it specifically enters into a contract to have that work performed. For that reason,it is difficult to conceive of how an independentcontractor could provide services without being “suffered or permitted”to do so. As a result, if the Wage Order “suffer or permit” definition were construed to displace the common law Borello standard as the test of independent contractorstatus, it would foreclose the use of independent contractors in California. That result would be revolutionary, contrary to decadesof practice in California, and, to AVP’s knowledge, without counterpart anywhereelse in the country. It is no answer to say—asplaintiffs attempt to do—that only the Wage Order’s other two definitions are relevant. Either the Wage Order governs the determination of independent contractor status, or it does not. And if the Wage Order definition determines, for a given claim, whethera person is an employee,then there is no logical reason to exclude “suffer or permit” while using the other two componentsofthe definition. If “suffer or permit” does not make sensein this context(as plaintiffs implicitly recognize), then it does not make sense to look to the Wage Orderatall. 2. Plaintiffs mischaracterize the “exercise control” standard and understate its dramatic breadth Although plaintiffs do discuss the “exercise control” component of the Wage Order definition, their treatment of “exercise control” is of a piece with their refusal to engage with the “suffer or permit” definition—plaintiffs attempt to downplay how revolutionary it would be for this Court to adopt the Wage Order definitionsas the test for independentcontractor status. According to plaintiffs, the “exercise control” definition is simply Bore//o’s right to controltest withoutthe LEGAL27595106.1 Honorable Chief Justice Tani Cantil-Sakauye August 15, 2013 Page 4 secondaryfactors. (Pls.’ Ltr. Br. at p. 13 [“This is a broader definition . . . than the common law’s, as it does not require a plaintiff to address the commonlaw’s secondary factors” but only the “right to control.”].) That is incorrect. The commonlawright to control test addresses whether the putative employer has the right to control “the manner and means of accomplishing the result desired.” (Borello, supra, 48 Cal.3d at p. 350 [quoting Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946].) By contrast, the Wage Order defines a person as an employeeif the putative employer exercises control over the worker’s “wages, hours, or working conditions,” a definition that is broader than the commonlawtest. (Martinez, supra, 49 Cal.4th at p. 64 [emphasis added].) As the Court observed in Martinez, “[s]upervision of the work, in the specific sense of exercising control over howservices are performed”—thatis, control in the Bore/lo sense—is just “one of the ‘working conditions’ mentioned in the wage order.” (/d. at p. 76 [emphasis added].) Accordingly, one can control other kinds of “working conditions” and be an employer under the Wage Orderdefinition but not under Borello. And one can also control “wages”or “hours,” a form of “control” that would satisfy the Wage Order’s definition but would notsatisfy Borello. The “exercise control” definition makes sense when oneis attempting to determine—asin Martinez—whethera person is employed by Employer A, Employer B, or Employers A and B. (See Martinez, supra, 49 Cal.4th at p. 59 [The “exercise control” definition “has the obvious utility of reaching situations in which multiple entities contro! different aspects of the employmentrelationship, as when one entity, which hires and pays workers, places them with other entities that supervise the work.”].) But it does not make sense in determining whether a person is an independent contractor or an employee. As with the “suffer or permit” standard,it is difficult to conceive of how anyonedirectly performing services for another would not be an employee underthat definition—including individuals who bear every indicium ofbonafide independent contractor status under Borello. As AVP explainedin its letter brief, one person cannot plausibly engage another to perform services without “exercising control”overthat person’s wagesor hours or working conditions. The “exercise control”definition thus cannot control the independent contractor inquiry because its use would not permitthe finding that anyoneis an independent contractor. But evenifplaintiffs were correct, and “exercise control” were just the “commonlawtest without the secondary factors,” it still would not make sense to construe Martinez assilently overruling Bore//o and mandating the use ofthat definition to decide independent contractor status. In reiterating California’s long-standing use of both the right of control and the secondary factors to evaluate independent contractor status, this Court soundly rejected the view that all that matters is the abstract right to control. (Borello, supra, 48 Cal.3d at p. 350 [explaining that the right to control, considered “‘in isolation,” is of “little use in evaluating the infinite variety of service arrangements”].) Indeed, in Martinezitself, this Court applied the Borello test— LEGAL27595 106.1 Honorable Chief Justice Tani Cantil-Sakauye August 15, 2013 Page 5 including the secondary factors—in concluding that the grower, Martinez, was an independent contractor of the other defendants and not their employee. (Martinez, supra, 49 Cal4th at p. 73.) This Court in Borello had good reason to recognize that the abstract right to control, standing alone,is not sufficient to distinguish independent contractors from employees. Consideration of the secondary factors—the full picture of a service relationship—maystrongly suggest either employee or independent contractor status in a way that the abstract right to control doesnot. Where the secondary factors point to employeestatus, a service recipient may be an employer evenifit hasrelatively little “right to control.” As an example, imagine a contractor who works largely free from direction but performs services only for a single client, uses tools and a workspaceprovidedbythat client, has a contract terminable at will, cannot use substitutes or helpers, and has no opportunity for profit or loss. Onthe other hand, a service recipient may havea fairly robust “right to control” the manner and means by which a bonafide independent contractor provides services. Imagine that a business performing services for the Department of Defense must retain a contractor with special skills for one aspect of the project. For security reasons, the Department of Defense might require the business to exercise close control over some aspects of how the contractor performs the work. At the same time, the contractor could be a highly skilled subject matter expert who ownsher own business, employs others, has been in business for many years, serves other clients, provides her owntools, is responsible for her own business expenses, and believes herself to be an independent contractor. If the Wage Order’s “exercise control” definition applied, the first person would not qualify as an employee underthat definition, but would qualify under the commonlawtest of Borello. On the other hand, the second person very likely would be an independent contractor under the Borello test, but nonetheless would be an “employee” under the “exercise control” standard. Even where the secondary factors would clearly show that a person is an independentcontractor, as that term has always been understood, courts would have no power to recognize bona fide independent contractor status. Reaching that outcome would require overruling an important part of Bore/lo and the numerous cases that have followed it. (See, e.g., Bowman v. Wyatt (2010) 186 Cal.App.4th 286, 303 [“[T]he right of control is an important factor in determining whether a worker is an employee or an independent contractor, butit is not the only factor... . [T]he cases consistently endorse a multi-factor test that considers not only the right of control, but also secondary factors”’].) Indeed, many courts have applied Borello to holdit is reversible error to instruct a jury that “the right of control, by itself, [gives] rise to an employer-employeerelationship” and that the jury can therefore make the independent contractor determination without reference to the secondary factors. (/d. at pp. 303-04 [emphasis omitted]; see also Cristler v. Express Messenger Sys., Inc. LEGAL27595106.1 Honorable Chief Justice Tani Cantil-Sakauye August 15, 2013 Page 6 (2009) 171 Cal.App.4th 72, 86 [noting that in Borello, this Court “concluded that the control of the details factor was not necessarily dispositive in every circumstance’”’].) Aswith the suffer or permit standard, using this Wage Orderdefinition to make the independent contractor determination would upendsettled understandingsof the distinction between independent contractors and employees and would undermine numerous contractual relationships premised on that understanding. That is the real implication ofplaintiffs’ contention that Martinez governs here. Their unwillingness to squarely address those consequencesis understandable—nothing in Martinez suggests this Court intended to take the radical step of effectively barring the use of independent contractors in California. The Court should decline plaintiffs’ invitation to do so here. B. Given the postureof this case, the Court need not address the relationship between Martinez and Borello or consider whether Martinez extends beyond Labor Code section 1194 Asdiscussed above, applying Martinez outside the context in which that case arose and allowing it to displace Borello would dramatically change independent contractor law in California. This case is a particularly poor vehicle for considering the complex issues that would be raised by taking such a step becauseplaintiffs did not advocate the application of Martinez below, and neither the trial court nor Court of Appeal considered Martinez in the first instance. Evenif this Court can consider the potential applicability of Martinez and the Wage Order sua sponte, plaintiffs do not explain whyit should do so here without a fully developed record. Plaintiffs instead devote nearly their entire letter to the proposition that the Court should extend Martinez beyond the Labor Codesection 1194 claim that wasat issue in that case. But that argument, too, was not preserved below. Plaintiffs concede, as they must, that Martinez holds only that the Wage Order definitions apply to claims brought under Labor Codesection 1194 and that Martinez did not “rule upon whether other Labor Code Sections’ definition of employer was controlled by complimentary IWC Wage Orders.” (Pls.’ Ltr. Br. at p. 5.) Whether the Wage Order definitions provide the definition of “employee” for purposes of particular Labor Code sections raises complex questions of statutory interpretation that are best left to a case where those issues were preserved below (which they were not), have been presented to this Court in a petition for review (which they were not), and are necessary to the disposition of the matter before the Court (which they are not). Plaintiffs treat it as self-evident that the Wage Order definitions apply to their Labor Code claims. It is not. For example, with regard to Labor Code section 2802,plaintiffs claim that Labor Code section 2802 and section 1194 were both enacted by the samelegislation in 1937, so the Wage Orderdefinition must apply to section 2802 claims. But “[s]Jection 1194 is the direct successorof, and its operative language comes immediately from, section 13 of the uncodified LEGAL27595106.1 Honorable Chief Justice Tani Cantil-Sakauye August 15, 2013 Page 7 1913 act[.]” (Martinez, supra, 49 Cal.4th at p. 52.) Labor Code section 2802 was, asplaintiffs state, enacted for the first time in 1937. The two sections have different legislative origins. Moreover, Labor Code section 1194 and 2802 are in different Chapters of the Labor Code. Labor Codesection 2802 is in a Chapter called “Employer and Employee” that contains its own specific definition of “employee.” Section 2750 of that Chapter specifically provides: “The contract of employmentis a contract by which one, whois called the employer, engages another, whois called the employee, to do something for the benefit of the employeror a third person.” That definition of “employee” is not coextensive with the Wage Order definitions. Accordingly, to determine whether the Wage Orderdefinitions apply to the section 2802 claim, the Court would need to harmonize the Wage Orderandthe statute. Plaintiffs suggest that the [WC can trump the Legislature by promulgating its own definitions of “employee,” but that is not true. (Pls.’ Ltr. Br. at p. 8.) To the contrary, “to the extent a wage order anda statute overlap,[this Court] will seek to harmonize them,as [it] would with any twostatutes.” (Brinker Restaurant Corp. v. Super. Ct. (2012) 53 Cal.4th 1004, 1027.) A complex set of rules govern this Court’s efforts to harmonize conflicting statutes. The Court tries to harmonize the conflicting statutes so that eachis given effect, but if it cannot do so “later enactments supersede earlier ones . . . and morespecific provisions take precedence over more general ones.” (Collection Bureau ofSan Jose v. Rumsey (2000) 24 Cal.4th 301, 310 {internal citations omitted].) In the ordinary case, this Court could approach the matter with the benefit of thorough briefing by the parties and the opinionsof the courts below. It cannot do so here becausethefirst time plaintiffs argued that the Wage Orderdefinitions apply to their claims wasintheletter brief they submitted at this Court’s request. Plaintiffs have forfeited the ability to argue that Martinez and the Wage Order bear on the narrow issues regarding the application of Borello that AVP petitioned this Court to address. They have further forfeited the ability to claim that the Wage Order definition applies to claims other than Labor Code section 1194. The Court need not consider those issues to resolve AVP’s petition to the Court. LEGAL27595 106.1 Honorable Chief Justice Tani Cantil-Sakauye August 15, 2013 Page 8 Cc. Conclusion For the foregoing reasons and those stated in AVP’s letter brief, the Court should resolve this case without reference to Martinez and the Wage Orderdefinitions. Respectfully submitted, 2). , FEI ‘ geJ. Stott enica D. Mariani cc: See attached certificate of service LEGAL27595 106.1 IN THE CALIFORNIA SUPREME COURT No. 8206874 MARIA AYALAet al., Plaintiffs and Appellants, V. ANTELOPE VALLEY NEWSPAPERS,INC. Defendant and Respondent. After a Decision by the California Court of Appeal, Second Appellate District, Division Four Case No. B235484 Appealfrom the California Superior Court, Los Angeles County Case No. BC403405 (Judge Carl J. West) CERTIFICATE OF SERVICE *Sue J. Stott, State Bar No. 91144 Eric D. Miller, State Bar No. 218416 PERKINS COJE LLP PERKINS COJE LLP Four Embarcadero Center, Suite 2400 1201 Third Avenue, Suite 4900 San Francisco, CA 94111-4131 Seattle, WA 98101-3099 Telephone: 415-344-7000 Telephone: 206-359-8000 Facsimile: 415-344-7050 Facsimile: 206-359-9000 SStott@perkinscoie.com EMiller@perkinscoie.com Attorneys for Defendant-Respondent I am employed in the County of San Francisco, State of California. I am overthe age of 18 and not a party to the within action. My business address is Four Embarcadero Center, Suite 2400, San Francisco, California 94111. August 15, 2013, I served the foregoing document(s) entitled: SUPPLEMENTAL REPLY LETTER BRIEF IN RESPONSE TO THE COURT’S ORDEROF JUNE26, 2013 on the interested parties in this action by placing a true and correct copy thereof enclosed in a sealed envelope addressed as follows: SEE ATTACHED SERVICE LIST BY MAIL:byplacing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, in the United States mail at San Francisco, California, addressed as set forth in the attached Service List. BY FEDERAL EXPRESS:byplacing the document(s)listed above in a sealed Federal Express envelope to be placed for collection by Federal Express on this date, and would,in the ordinary course of business, be retrieved by Federal Express for overnight delivery on this date. I declare under penalty of perjury under the lawsofthe State of California that the foregoing is true and correct. Executed on August 15, 2013, at San Francisco, California. SERVICE LIST Daniel J. Callahan Michael J. Sachs Kathleen L. Dunham Michael John Wright CALLAHAN & BLAINE, APLC 3 Hutton Center Drive, Suite 900 Santa Ana, CA 92707 Camille Olson Seyfarth Shaw LLP 131 South Dearborn Street Suite 2400 Chicago, IL 60603-5577 David D. Kadue Seyfarth Shaw, LLP One Century Plaza, Suite 3500 2029 Century Park East Los Angeles, CA 90067-3021 Della Barnett Impact Fund 125 University Avenue, Suite 102 Berkeley, CA 94710 Fernando Flores Legal Aid Society 180 MontgomeryStreet, Suite 600 San Francisco, CA 94104 Aaron David Kaufmann 1330 Broadway,Suite 1450 Oakland, CA 94612. Paul Grossman General Counsel ofthe California Employment Law Council 515 S. FlowerStreet, 25th Floor Los Angeles, CA 90071 Heather Wallace Associate General Counsel California Chamber of Commerce 1215 K Street, Suite 1400 Sacramento, CA 95814 Attorneys for Plaintiffs and Appellants MARIA AYALA, ROSA DURAN and OSMAN NUNEZ (1 copy) VIA FEDERAL EXPRESS VIA U.S. MAIL VIA U.S. MAIL VIA U.S. MAIL VIA U.S. MAIL VIA U.S. MAIL VIA U.S. MAIL VIA U.S. MAIL Clerk of the Court California Court of Appeal Second Appellate District, 4th Division Ronald Reagan State Building 300 S. Spring Street 2nd Floor, North Tower Los Angeles, CA 90013 Clerk of the Court California Superior Court County of Los Angeles 111 North Hill St. Los Angeles, CA 90012-3014 Attorney General of California Appellate Coordinator Office of the Attorney General Consumer Law Section 300 S. Spring Street Los Angeles, CA 90013-1230 Los Angeles County District Attorney’s Office 210 West Temple Street, Suite 18000 Los Angeles, CA 90012-3210 71240-0001/LEGAL27597186.1 VIA U.S. MAIL VIA U.S. MAIL VIA U.S. MAIL VIA U.S. MAIL