DYNAMEX OPERATIONS WEST v. S.C.

Petitioner’s Petition for Review

Cal.Nov 24, 2014

$ 222732 Case No. S FILED IN THE SUPREME COURT OF CALIFORNIA NOV 24 2014 DYNAMEX OPERATIONSWEST,INC., wis Frank A. McGuire ClerkPetitioner, Deputy vs. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent, CHARLESLEEet al., Real Parties in Interest. PETITION FOR REVIEW AFTER A DECISION BY THE COURT OF APPEAL SECOND APPELLATE DISTRICT, DIVISION SEVEN, CASE NO. B249546 Los ANGELES COUNTY SUPERIOR COURT, CASE NO. BC 332016 MICHAEL L. STERN, JUDGE LITTLERMENDELSON PC SHEPPARD MULLIN RICHTER & *ROBERT G. HULTENG, SBN 071293 HAMPTON LLP DAMON M.OTT, SBN 215392 *ELLEN M. BRONCHETTI, SBN 226975 PHILIP A. SIMPKINS, SBN 246635 PAUL S. COWIE, SBN 250131 650 CALIFORNIA STREET, 20™ FLOOR FOUR EMBARCADERO CENTER, SAN FRANCISCO, CALIFORNIA 94108 17" FLOOR TELEPHONE: 415.433.1940 SAN FRANCISCO, CALIFORNIA 94111 FACSIMILE: 415.399.8490 TELEPHONE: 415.774.3185 EMAIL: rhulteng@littler.com FACSIMILE: 415.434.3947 EMAIL: ebronchetti@sheppardmullin.com Attorneys for Petitioner Dynamex Operations West, Inc. Service on Attorney General of The State of California and District Attorney of The County of Los Angeles Required By Bus. & Prof. Code § 17209 Case No. S IN THE SUPREME COURT OF CALIFORNIA DYNAMEX OPERATIONS WEST,INC., Petitioner, VS. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent, CHARLESLEEetal., Real Parties in Interest. PETITION FOR REVIEW AFTER A DECISION BY THE COURT OF APPEAL SECOND APPELLATE DISTRICT, DIVISION SEVEN, CASE NO. B249546 Los ANGELES COUNTY SUPERIOR COURT, CASE NO. BC 332016 MICHAEL L. STERN, JUDGE LITTLERMENDELSON PC SHEPPARD MULLIN RICHTER & *ROBERT G. HULTENG, SBN 071293 HAMPTON LLP DAMON M.OTT, SBN 215392 *ELLEN M. BRONCHETTI, SBN 226975 PHILIP A. SIMPKINS, SBN 246635 PAUL S. COWIE, SBN 250131 650 CALIFORNIA STREET, 20™ FLOOR FOUR EMBARCADERO CENTER, SAN FRANCISCO, CALIFORNIA 94108 17™ FLOOR TELEPHONE: 415.433.1940 SAN FRANCISCO, CALIFORNIA 94111 FACSIMILE: 415.399.8490 TELEPHONE: 415.774.3185 EMAIL: rhulteng@littler.com FACSIMILE: 415.434.3947 EMAIL: ebronchetti@sheppardmullin.com Attorneys for Petitioner Dynamex Operations West, Inc. Service on Attorney General of The State of California and District Attorney of The County of Los Angeles Required By Bus. & Prof. Code § 17209 Case No. S IN THE SUPREME COURTOF CALIFORNIA DYNAMEX OPERATIONS WEST,INC., Petitioner, Vs. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent, CHARLESLEEetal., Real Parties in Interest. PETITION FOR REVIEW AFTER A DECISION BY THE COURT OF APPEAL SECOND APPELLATE DISTRICT, DIVISION SEVEN, CASE NO. B249546 Los ANGELES COUNTY SUPERIOR COURT, CASE No. BC 332016 MICHAEL L. STERN, JUDGE II. HY. TABLE OF CONTENTS PAGE WHY REVIEW SHOULD BE GRANTED 1... eccecceecsessessecsseenseenserscsess 2 STATEMENTOF FACTSooo. eccescesreeenseeeeseceseeeseecsseasenseeseeeaseesessnerseas 5 A. The Parties and the Complaint ..........ccccccccccsseceseeseessseeessesescessesees 5 B The Class Is Certified and Decertified ........ ccc icceesceseceteeeeteenees 6 oF The Class Is Recertified Based on Martinez .....ccccccsccscccssecsseeseseees 6 D The Court Denies Dynamex’s Second Motionto Decertify Based On Borello ...ccccccesccesccssccsscceseesecscesaceseaesseessessseeceseesesseseteeseas 8 DynamexFiled a Petition for Writ of Mandate ..0.......ccece 8 F. The Court of Appeal Published Its Opinion Affirming the Trial Court... cceceeceesnecesecesesesceceaeceeceseeneeeesseeerecsseesesessaeessseensens 10 ARGUMENToccceeeccesssseeeseeceneeeceesaeceaceeceseesaesseeecsaecssesnessseeenseeseseeesaeegs 12 A. The Holding and Rationale of Martinez was Clearly Limited to Determining Who Could Be Held Liable as the “Employer” of Undisputed Employees...........ccesccssesseeescesreeneeees 13 B. Martinez Also Demonstrates That the Wage Order Definitions of “Employer” and “Employ” Should Not Be Interpreted to Displace the Common Law Independent Contractor Test... cccesesesscssecscecesseteesecseessecessseesseeeseenseesesaeeesaeesnees 15 1. In Martinez, This Court Applied the Common Law Test to Determine Independent Contractor Status.............. 16 2. As Martinez Shows, The Wage OrderDefinitions Were Not Meant to Distinguish Employees from Independent Contractors ..0......cccescecesseesesseeseteeesseeeesseeseens 17 3, The IWC Lacks Power to Regulate Independent COMtraCtOLS oeseeetesseceeeeseceeeseceeccaeeesesscesseceseeesseseeestens 18 TABLE OF CONTENTS (CONTINUED) PAGE C. Applying the Holding ofMartinez to Determinations of Independent Contractor Status Would Have Extreme and Bizarre COnSequences.........csceeseseesceseceseeseceeeesesseeseessseessesseseneenes 21 D. The Common Law Test for Determining Independent Contractor Status Should Continue to be Applied to Claims Encompassed by the Wage Orde?..........ccesecssesseeessesesesecsensensenees 27 TV. CONCLUSION000.ececeseeeseesesseeeetecsecseceaeensceeeseseaesneeeasnecseesessseasaees 27 il. TABLE OF AUTHORITIES Page(s) CASES Arreola v. One More Productions (Cal. Ct. App., Feb. 5, 2014, G047467) 2014 WL 462996... ccsseseserssetessesessseeseteeseseseeneees4 Arzate v. Bridge Terminal Transp., Inc. (2011) 192 CalApp.4th 419.cccecssecsensetecesessessesaneesessecsaseceesscnssecscseeesetsesetataeaeatees4 Ayala vy. Antelope Valley Newspapers, Inc. (2014) 59 Cal4th 522oeccsecscesenetesessnetseeeneneeseeseseesevseseneseceecseecacsenenesaeeeeesateeeaes passim Bradley v. Networkers Int’l, LLC (2012) 211 Cal.App.4th 1129 ooocceceeecceseneeeeeceecsesseeecseseavsesecesessesessesnaeesaenetseaeeeneeseas 4 Brown v. Mission Filmworks (Cal. Ct. App., Dec. 6, 2012, B239005) 2012 WL 6055939 oo. eesssesceeseescteteesenseseteeersesssees4 Chevron U.S.A., Inc. v. Workers’ Comp. Appeals Bd. (1999) 19 Cal.4th 1182occcccescseessseseseeeceesescecesecsesacsecsesseescaeaesesacaeeesevecaeeaeerteees 11, 13 Duran v. U.S. Bank National Assn. (2014) 59 Cal4th Lion ccccescecesceeesescseseneesceecsesesseeeceesaccessnssecncneesseeseseserseaseecsenseseeeeecens 10 Kaewsawangv. Sara Lee Fresh, Inc. (Cal. Ct. App., May 3, 2012, B231778) 2012 WL 1548290 oo... eecsecseecseseseeseteenesteeeeneeeenens4 Martinez v. Combs (2010) 49 Cal.4th 35 iccccccsecssssseessescscsscseceecessecaeceesceenesessserssecsseeeeaeesenseneseens passim Metropolitan Water Dist. v. Superior Court (2004) 32 Cal.4th 491, 9 Cal.Rptr.3d 857, 84 P.3d 966.0... eeseeseseseseesenseseeeceesenenes 27 Peabody v. Time Warner Cable, Inc. (2014) 59 Cal. 4th 662 oo. cccccscccesceseescssescsceceeeeacescseeeeaeceesessecacssesseanscstsesesetacsevesseseeseesseseaenes 18 Rippon v. Bowen (2008) 160 Cal.App.4th 1308 oo. cccsecesecceseeseneceesceeseeeecesesesnsesenenseseenseseserasseereaeeeeessses20 S.G. Borello, Inc. v. Dep’t ofIndus. Relations (1989) 48 Cal.3d 34] vcccccccsssecsssseseccssssssssssuessssssssssssssssenssssssssssssiesessseesetsunasneesetee passim ill. Sotelo v. MediaNews Group, Inc. (2012) 207 Cal.App.4th 639.0. ceccsessesccsesssseeeescsesssssseaesesssvecsescsssnssesesseseeesesenessscscseseeeeaes4 Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943iccescsesesssessesssssssseeeeecseseeessesensescsesesestsnssseesseersseseecsessecensasacssseseeass22 Weseman v. Hertle (Cal. Ct. App., Mar. 7, 2014, F065375) 2014 WL 904522... ccccccccsesseseseeeeseeetscsssesstseeetenes4 STATUTES Cal. Labor Code § 201 o..cccccccccccsssecssssecsssseceseecsseeccsseesessescesessecaeecesesesseessuseescesseseesensensevstees 13, 26 Cal. Labor Code § 202 oo. cccessccescsceeesesessenscseseesecseesssneneceesaeeeeseeseeesesssseseeesstereeeeeeeacsesenecaes 13, 26 Cal. Labor Code § 203 wo. ccccccccscccsssscsssssceesssecsseceseeeesseseesesseeceesesessacensseseesssssesesssesersessesssseaass 13, 26 Cal. Labor Code §1173 ..ccccccccccccssccsscssecssecscsscessestecaesesscesssssessesseescsssssessessscsssecaseaevaceecersenaeeas 19 Cal. Bus. and Prof. Code §17200........ccccccsscesssessssessecsstensessesenseesessessecsevsecassessceseseessevseessarsnessesecass 5 Cal. Lab. Code § 1194iscsesenessseeseeneesseesaesneseseensnersaeeseesessessecsessesaesresseeeesesaeseeeees passim Cal. Lab Code § 2802 wo ceccssscscecsscesssevsesessscesserscsacsessesecsssacscecseesesecessaciceessssesessenecseasseesseeeenees26 OTHER AUTHORITIES California Constitution wc...cccccsecsssecseccecssssssssscsnsccessesssorsuvsessascnssesevsseesnees 18, 19, 20, 27 iv. ISSUES PRESENTED 1. To what extent, if at all, should the legal standard articulated by this Court in Martinez v. Combs be extended to distinguish between employees and independent contractor status in California wage and hour cases? 2. Alternatively, does S.G. Borello & Sons, Inc. v. Department of Industrial Relations remain the controlling precedent for determining whether individuals are independent contractors or employees? I. WHY REVIEW SHOULD BE GRANTED The question of law raised by this petition is one that even this Court has recognized needs to be decided, when the timeis right and the issue is properly presented by the facts of the case. The time is right now. This case fairly presents the issue. Just six months ago, in Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, the Court addressed the propriety of class certification in a wage and hour case that turned on whetherthe plaintiffs were employees or independent contractors. Initially, in that case, the Court solicited supplemental briefing on the possible relevance of the Industrial Welfare Commission (IWC) wage order definition of employee status, as discussed in Martinez v. Combs (2010) 49 Cal.4th 35 and other cases. Ultimately, the Court resolved the case by applying only the commonlawtest because that was the test applied by thetrial court and the Court of Appeal. The Court advised: “Accordingly, we leave for another day the question what application, if any, the wageorder tests for employee status might have to wage and hour claims such as these... .” (Ayala, supra, at p. 531.) The “another day” has come. Like Ayala, this case involves the central legal issue of whether putative class members are employees for -2- purposes of the provisions under which they sue. Butthis time, contrary to Ayala, the trial court chose the wage order/Martinez test favored by the Plaintiffs rather than the long-established commonlawtest in S.G. Borello & Sons, Inc. v. Dep’t ofIndus’ Relations (1989) 48 Cal.3d 341, upon which Dynamex relied. Dynamex petitioned the Court of Appeal for review. The Court of Appeal issued an order to show cause to address the very issue raised by this Petition: ‘whether the superior court erred in ruling a class maybecertified under the IWC definition of employee as construed by the Supreme Court in Martinez or, as Dynamex contends, may proceed only under the commonlaw test discussed in Borello.” (Order to Show Cause, issued July 10, 2013, Perluss, P.J., Zelon, J., and Segal, J.) Following briefing by both parties, the Court of Appeal affirmed the use of the wage order/Martineztest. Both the trial court and the Court of Appeal erred in extending the analysis of Martinez to the facts here. Martinez is a joint employer case that only specifically defines who qualifies as an “employer.” It does not address who is an “employee.” Nor does Martinez address how to distinguish between an employee and an independent contractor. Indeed, the Martinez court engaged in an extensive analysis of the Industrial Welfare Commission’s authority. This analysis demonstrates why the IWC’s definition of “employer” cannot be applied to misclassification determinations. As a result, the commonlawtest followed in Borello and Ayala should continue to define the distinction between an “employee” and an “independentcontractor” for purposes of California wage and hourlaws. The issue raised by this Petition has wide application to every independent contractor relationship in California. Although the Court of Appeal dismissed Dynamex’s arguments as “overblown rhetoric,” its extension of Martinez would effectively eliminate independent contractor status in California. The expansive phrases used by the Court in its -3- opinion—“suffer or permit” and “control over wages, hours, or working conditions’—would sweep in virtually every arm’s length independent contractor relationship in California, and convert it to an employment relationship. This Court’s intervention is also necessary to secure uniformity of decision regarding the correct test for independent contractor status in wage and hour cases. Other appellate courts have not subscribed to the broad reading given to Martinez by the Court of Appeal here. Two other published appellate opinions identify Martinez as potentially relevant to the determination of employee status for wage claims, and yet both chose to apply the commonlawtest. (See Sotelo v. MediaNews Group, Inc. (2012) 207 Cal.App.4th 639, 660-62 [First Appellate District]; Bradley v. Networkers Int’l, LLC (2012) 211 Cal.App.4th 1129, 1145-47 [Fourth Appellate District].) One other published opinion and several other unpublished decisions, including decisions from other divisions within the Second District, have addressed this question without any mention of Martinez at all. (See Arzate v. Bridge Terminal Transp., Inc. (2011) 192 Cal.App.4th 419 [Second Appellate District, Division Eight].)’ Everyone involved—Plaintiffs, Dynamex, the trial court, the Court of Appeal, and this Court—all believe that the issue set forth in this Petition raises an important issue of law that should be reviewed. The question of ' Unpublished decisions that applied Borello to California wage claims after Martinez include: Kaewsawang v. Sara Lee Fresh, Inc. (Cal. Ct. App., May 3, 2012, B231778) 2012 WL 1548290, at *3-4 [nonpub. opn.][Second Appellate District, Division Five]; Weseman v. Hertle (Cal. Ct. App., Mar. 7, 2014, F065375) 2014 WL 904522, at *1 [nonpub. opn.][Fifth Appellate District; Brown v. Mission Filmworks (Cal. Ct. App., Dec. 6, 2012, B239005) 2012 WL 6055939, at *2 [nonpub. opn.|[Second Appellate District, Division Eight]; and Arreola v. One More Productions (Cal. Ct. App., Feb. 5, 2014, G047467) 2014 WL 462996, at *5 [nonpub. opn.][Fourth Appellate District]. whether an individual is an independent contractor or an employee is frequently at the center of wage and hourclass action cases in California. The issue has become ripe for review. Petitioner Dynamex Operations West, Inc. respectfully requests that the Court grant this Petition and review the Second District’s opinion in this matter. A copy of the Second District’s opinion is attached hereto as “Exhibit A” and will be cited as “Op.” II. STATEMENT OF FACTS A. The Parties and the Complaint. Petitioner Dynamex Operations West, Inc. (“Dynamex”) is a nationwide courier and delivery company and the defendant in an action now pending in Respondent Superior Court, entitled Charles Lee and Pedro Chevez v. Dynamex Operations West, Inc., L.A.S.C. Case No. BC 332016. Plaintiffs and Real Parties in Interest Charles Lee and Pedro Chevez (“Plaintiffs”) are two former same-day delivery drivers who contracted with Dynamex. (See Op.at p. 2.) Plaintiffs assert five causes of action, all of which are based on the premise that they and other class members were misclassified as independent contractors and should have been classified as employees: 1) unfair business practices in violation of California’s Business and Professions Code §17200; 2) unlawful business practices in violation of California’s Business and Professions Code §17200; 3) failure to pay overtime compensation; 4) failure to provide properly itemized wage statements; and 5) failure to fully compensate for business expenses. (See pp. 1724-1744; Vol. 6; Tab 20.) > Pagecitations are to the Appendix of Exhibits submitted with Dynamex’s Petition for Writ of Mandate, Prohibition, or Other Appropriate Writ, filed June 24, 2013. B. The Class Is Certified and Decertified. In 2006, Respondentfirst denied certification of a class, holding that individualized issues predominated because: “there are huge variations in the duties of Drivers as well as the relationship between the Drivers and defendant and the relationship between the clients and Drivers.” (See p. 1657:5-9; Vol. 6; Tab 16.) However, after that denial was overturned on other grounds, Respondent allowed Plaintiffs to file two amended complaints redefining the class. Respondent later granted certification, only to subsequently enter a stipulated order “conditionally” certifying the class pending the results of a questionnaire to putative class members. (See pp. 1709-1744; Vol. 6; Tabs 19-20.) On December 23, 2010, Dynamexfiled its first motion to decertify. (See pp. 2072-2936; Vol. 7-10; Tabs 32-36.). Dynamex explained that a class was not ascertainable because, among other reasons, the questionnaires proved that individualized inquiries were necessary to determine employmentstatus under the commonlawtest referred to in S.G. Borello, Inc. v. Dep’t ofIndus. Relations (1989) 48 Cal.3d 341. (See pp. 4719-4749; Vol. 16; Tab 39.) Respondent initially granted the decertification motion. Plaintiffs asked to again changetheclass definition. (See pp. 5975-5979; Vol. 20; Tab 53.) Respondent then vacated the decertification order, and continued Dynamex’s decertification motion to allow Plaintiffs to file a third motion for class certification. (See pp. 6015- 6016; Vol. 21; Tab 55.) C. The Class Is Recertified Based on Martinez. On February 24, 2011, Plaintiffs filed their third motion for class certification. (See pp. 6017-6266; Vol. 21; Tabs 56-60.) This time, Plaintiffs argued that this Court’s then-recent decision in Martinez v. Combs (2010) 49 Cal.4th 35 enunciated new tests for employment status. Plaintiffs argued that all that was necessary for a driver to be an employee wasthat -6- Dynamex knew the driver was providing services or that Dynamex negotiated the rates paid to the driver. (See pp. 6020-6048; Vol. 21; Tab 57.) On May 18, 2011, Respondent granted Plaintiffs’ third certification motion and denied Dynamex’s motion to decertify. (See pp. 6541-6567; Vol. 22; Tab 71.) In doing so, Respondent first noted that, if Borello remained the controlling standard, a class could not be certified: “the main factor in determining whether an employment agreement exists—control— does require individualized inquiries.” (See pp. 6564:22-23; Vol. 21; Tab 71.) Respondent also observed that this need for individualized inquiries existed with respect to the secondary factors referenced in Borello, including the opportunity for profit or loss and the method of payment. (See pp. 6563:19-6564:2, 6564:9-15; Vol. 21; Tab 71.) Nevertheless, Respondent accepted Plaintiffs’ argument that Martinez indicated a “redefinition of the employment relationship.” Specifically, the court ruled that a driver was an employee of Dynamex if Dynamex either: (i) “suffered or permitted” the driver to work or (ii) exercised “control over the wages, hours or working conditions” of the drivers. (See pp. 6561:10-6562:4; Vol. 21; Tab 71.) Therefore, under the “redefinition,” all that Plaintiffs needed to show in order to prove employee status was that Dynamex either(i) “knew or should have known” they were providing services—whichincludedall “drivers with whom it entered into an agreement”—or(ii) had the authority to negotiate the amount it would pay the drivers for their services. (See pp. 6561:16-6562:4; Vol. 21; Tab 71.) Dynamex disagreed with Respondent’s interpretation of Martinez. Respondent noted that Martinez addressed only whocould be held liable as an “employer” for the payment of wages. Unfortunately, at the time of Respondent’s ruling there were very few published cases upon which Respondent could rely to support its interpretation of Martinez. (See pp. 6604-6606; Vol. 23; Tab 74.) D. The Court Denies Dynamex’s Second Motion to Decertify Based on Borello. Subsequent California decisions made it clear that Respondent had seriously misread Martinez. Relying on this new authority, on December 28, 2012, Dynamex filed a second decertification motion. (See pp. 6586- 6644; Vol. 22-23; Tabs 73-76.) Dynamex argued, among otherthings, that several opinions published after Respondent’s grant of certification had addressed the independent contractor/employee distinction without applying the “suffer or permit” or “exercise control over the wages, hours, or working conditions” standards described in Martinez. These decisions demonstrated that Respondent had erred in interpreting the Martinez definition of “employer” to also define employee status. Dynamex argued Respondent should follow Borello and decertify the class, as Dynamex had already ruled that the common law test could not be applied without individualized inquiries. (See pp. 6604-6606; Vol. 23; Tab 74.) On April 22, 2013, Respondent denied Dynamex’s second Motion to Decertify the Class. Respondent declined to provide a written decision for its conclusion, instead simply stating: “my conclusion is that there is no new law or facts that argue for decertification.” (See pp. 6913:3-5; Vol. 24; Tab 82.) However, Respondent recognized the novel approachit had taken in its application of Martinez and thus vacated the trial date and invited Dynamexto seek appellate review, recognizing that: “It’s hard to read the cases cited without somerealization that the courts of appeal love to decide these issues.” (See pp. 6919:7-9; Vol. 24; Tab 82.) E. DynamexFiled a Petition for Writ of Mandate. On June 24, 2013, Dynamexfiled its Petition for Writ of Mandate in the Second Appellate District of the Court of Appeal of the State of -8- California (hereinafter “Petition for Writ”). As relevant to this Petition, Dynamex argued that Respondent had abused its discretion by denying Dynamex’s decertification motion based on its erroneousinterpretation of Martinez. In particular, Dynamex argued that: 1) the Martinez opinion established new tests for evaluating joint employer status only; 2) Martinez could only apply to cases involving acknowledged employees; 3) Martinez tests could not be applied to threshold determination of whether workers were properly classified as employees or independent contractors; and 4) that Respondent’s reliance on Martinez was therefore erroneous and an abuse of discretion. (Petition for Writ, Memorandum of Points and Authorities, pp. 4-20.) On July 10, 2013, the Second District issued an Order to Show Cause why Respondent’s denial of the decertification motion should not be reversed. (Order to Show Cause, issued July 10, 2013, Perluss, P.J., Zelon, J., and Segal, J.) On October 7, 2013, Plaintiffs filed their Return to Dynamex’s writ petition. Plaintiffs correctly identified the holding of the Martinez opinion: “Martinez then held that the IWC Wage Order 14-2001, provided the definition of employer for claims under Labor Code Section 1194.” (Return to Writ Petition with Supporting Memorandum of Points & Authorities, filed Oct. 7, 2013, p. 25 [emphasis added].) However, Plaintiffs then surmised that by construing the term “employ” within the IWC Wage Orders’ definition of “employer,” Martinez “made very clear that the IWC has broad authority to regulate who is an employee.” (See Return at p. 25.) Based on their interpretation of Martinez, Plaintiffs argued that Respondent wascorrect in ruling that Dynamex’s “authority to negotiate each driver’s rate of pay” and its entry into “agreements” with drivers were enough—standing alone—to demonstrate that the drivers were employees of Dynamex. (Return at pp. 30-33.) In its Reply, Dynamex argued that, as acknowledged by both Plaintiffs and Respondent, the question addressed in Martinez was “who may be held liable as employers?” — is a question that assumes the existence of an admitted employee. (Petitioner’s Reply in Support of Petition for Writ of Mandate, Prohibition, or Other Appropriate Writ, filed Nov. 15, 2013, pp. 6-7.) Dynamex further argued that, because the classification of the admitted employees in Martinez was not in dispute, Martinez could not be interpreted to redefine who qualifies as an employee. (Reply at p. 7.) Finally, Dynamex arguedthat application of the Martinez joint-employer test to employee classification decisions would effectively abolish independent contractor status in California. One cannot contract with a person to perform services without knowing that person is performing the work, or without explicitly or implicitly negotiating the rate of pay for the work. (Reply at pp. 8-10.) The Second District requested supplemental briefing from the parties regarding the application, if any, of this Court’s decisions in Duran v. U.S. Bank National Assn, (2014) 59 Cal.4th 1 and Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522. The parties differed as to their responses, but those responses were both focused on issues not germane to this Petition. (See, generally, letter briefs submitted August 8, 2014.) F. The Court of Appeal Published Its Opinion Affirming the Trial Court. On October 15, 2014, the Second District issued its written opinion in this matter and certified it for publication. (See, generally, Op.) The Second District acknowledged that Respondent had found that individualized inquiries would dominate application of the common law test for distinguishing independent contractors from employees. (/d. at pp. 7-8 [citing Ayala, supra, 59 Cal.4th at p. 529].) The opinion also acknowledgedthat “when a statute refers to an ‘employee’ without defining -10- the term, courts have generally applied the commonlaw test of employment to that statute.” (ad. at p. 15.) It also acknowledged that, in Martinez, this Court analyzed the legislative history of Labor Code section 1194 and the language used in the IWC Wage Orders to define “employer” because “Labor Code section [1194] does not specify who is liable underits terms.” (Id. at p. 9 [emphasis added].) The Second District’s opinion relied on this Court’s decision in Chevron U.S.A., Inc. v. Workers’ Comp. Appeals Bd. (1999) 19 Cal.4th 1182, 1195 for the rule that “language in a judicial opinion is to be understood in accordance with the facts and issues before the court.” (/d. at p. 16.) However, in a footnote two sentences later, the Court dismissed Dynamex’s attempts to limit Martinez to joint-employer contexts by stating ‘Ta]lthough that was the precise factual context in which the issue arose in Martinez, nothing in the case supports a limitation of this nature.” (/d. at p.16, fn.14.) The Second District also referred to Dynamex’s assertions that Respondent’s interpretation of Martinez would effectively eliminate independent contractor status in California as “overblown rhetoric.” (/d. at p. 12.) But, like Respondent, the Second District’s opinion did not explain how anyone could maintain an independent contractor relationship without knowing work wasbeing performed or exercising control over the amount paid for that work. (See, generally, id.) The Second District therefore concluded that Martinez could properly be applied to distinguish employees from independent contractors and approved of the manner in which Respondent applied Martinez in this case. (/d. at p. 16.) In fact, the Second District’s opinion appears to hold that Martinez can be applied to determine who is an employee for the purposes of any claims falling within the scope of the IWC Wage Orders. (Id. at p. 16-18.) -ll- The SecondDistrict’s Opinion becamefinal on November 14, 2014. Dynamexdid notfile a petition for rehearing. Il. ARGUMENT The Second District fundamentally erred when it held that this Court’s analysis in Martinez (a joint employer case}—and the Court’s interpretation of the term “employer” under the IWC Wage Orders—could be applied to distinguish independent contractors from employees. Martinez defines only who qualifies as an “employer.” It does not address whois an “employee.” Furthermore, the Martinez Court’s own analysis of IWC Wage Orders demonstrates that the IWC’s definition of “employer” cannot be reverse-engineered to distinguish employees from independent contractors. In fact, the IWC cannot unilaterally expand the scope of who qualifies as an “employee” in California. The IWC’s “suffer or permit” standard makes perfect sense when there is an admitted employee. Equally sensible in that context is the “exercise control over wages, hours or working conditions” standard. Both presume that an employmentrelationship exists. These two standards then test whether multiple parties should be liable to the admitted employee. But the tests have no value when there is no admitted employee. Everyone—employee and contractor alike—is “suffered or permitted” to work by the person requesting services. Likewise, both employees and contractors do not perform work unless wages and/or timing of the work are discussed in advance. It is no exaggeration to say that affirmance of the Court of Appeal here would effectively eliminate independent contractor relationships in California. Evenif it did not, it would lead to bizarre results. For example, the same worker could be defined as an employee for purposes of some provisions of the Labor Code, such as Section 1194 (which mirrors [WC -12- Orders on minimum wageand overtime), but not for others sections within the same Division of the Code, such as Sections 201-203 regarding the payment of wages upon termination (which sections are not incorporated into IWC Orders). With all these considerations in mind, Dynamex respectfully petitions this Court to hold that the commonlaw test referred to in Borello and Ayala continues to define the distinction between an “employee” and an “independent contractor” for purposes of the [WC’s Wage Orders and any Labor Codesections that do not otherwise define “employee.” A. The Holding and Rationale of Martinez was Clearly Limited to Determining Who Could Be Held Liable as the “Employer” of Undisputed Employees. Both the trial court and the Second District determined that this Court’s opinion in Martinez v. Combs established two new tests that differentiate between employees and independent contractors. However, the factual background of Martinez demonstrates that its holding pertains solely to determining who can be held liable as a joint employer ofpersons whoare undisputedly employees. And, as the Second District stated in the opinion that is challenged via this Petition: “language in a judicial opinion is to be understood in accordance with the facts and issues before the court; an opinion is not authority for propositions not considered.” (Op. at p. 16 [citing Chevron U.S.A., supra, 19 Cal.4th at p. 1195].) In Martinez, it was undisputed that the six plaintiffs were all employees of former defendant Munoz. (Martinez, supra, 29 Cal. 4th at p. 42 [“Plaintiffs are seasonal agricultural workers whom Munoz employed . ..’].) Munoz filed for bankruptcy and thus could not pay them. (U/d.) The Plaintiffs also sued the merchants with whom Munoz contracted, based on the allegation that they were “joint employers” and should be liable for the unpaid wages. (/d. at pp. 42, 48-50 [noting “[p]laintiffs contend the . . -13- Wage Order... defines defendants as their employers;” and plaintiffs “contended defendants Apio and Combs, together with Munoz, jointly employedplaintiffs”][emphasis added].) None of the defendants in Martinez claimed the plaintiffs were independent contractors. Therefore, the Martinez opinion contains no analysis regarding whetherthe plaintiffs were misclassified as independent contractors. To the contrary, they were all admitted employees. Significantly, the term “independent contractor” is not once used in the Martinez opinion in reference to the plaintiffs. As discussed below,the only time the terms “contractor” or “independent contractor” appear is during this Court’s analysis of whether Munoz himself was an employee of the merchants with whom he contracted (this Court concluded he was not). (See id. at p. 73.) That the analysis in Martinez was solely focused solely on whether the merchants were joint employers ofthe plaintiffs is also abundantly clear from the framing of the issues addressed. Mosttelling, this Court described the question presented as: “How then do we define the employment relationship, and thus identify the persons who may be liable as employers, in actions under section 1194?” (/d. at p. 51 [emphasis added].) Martinez does contain a thorough analysis of the Wage Orders’ definition of the term “employ.” (/d. at pp. 57-60.) But, that analysis was squarely in the context of defining the scope of the term “employer,” which is (somewhatcircularly) defined in the Wage Orders to include “any person ... who directly or indirectly ... employs... any person.” That defining the term “employer” was the true focus of the opinion is evident from this Court’s explicit rationale for interpreting the Wage Order definitions. Specifically, the Court noted it was necessary to look beyond the language of Labor Code section 1194—not because section 1194 fails to define “employee,” which is true—but because: _|4- (a) Labor Code section 1194 “has ... given an employee a cause of actionfor unpaid minimum wages without specifying who is liable” but “only an employer can be liable [because] no generally applicable rule of law imposes on anyoneother than an employer a duty to pay wages”(id. at p. 49 [emphases added]); (b) “the concept of joint employment [has] avoided judicial scrutiny in the context of wage claims brought understate law” (id. at p. 50 [emphasis added]); and (c) ‘“{a]lthough we have recognized that a person, by exercising significant control over the employees of another, may come to share the employer’s legal obligations, our decisions on this point have concerned statutory schemes other than the wage laws.” (/d. at p. 50 [emphases added].) In sum, although the Martinez opinion frequently states that it is ”analyzing the “employment relationship,” the factual background and issues addressed in Martinez demonstrate that it focused solely on determining who canbe held liable as being on the “employer”side of that relationship. Martinez does not speak that who is an “employee” for purposesof California’s wage laws. B. Martinez Also Demonstrates That the Wage OrderDefinitions of “Kmployer” and “Employ” Should Not Be Interpreted to Displace the Common Law Independent Contractor Test. Although Martinez did not address the question of what test should be used to distinguish between independent contractors and employees, the decision contains a revealing discussion of independent contractor status. That discussion makes clear that the “suffer and permit” and “control over wages, hours, or working conditions” definitions cannot and should not be applied to employee misclassification claims. -15- 1. In Martinez, This Court Applied the Common LawTestto Determine Independent Contractor Status. Clearly, there is nothing in Martinez to suggest that the Wage Order definition of “employer” should be used to displace the common law independent contractor test described in Borello and Ayala. Indeed, this Court chose the common law test—not the Wage Order definition of employer—when analyzing whether Munoz was an independent contractor or an employee of the produce merchants. The plaintiffs had argued that Munoz was himself an employee of the merchants and, by extension, that the plaintiffs were therefore employees of the merchants. In response, this Court opined that “Munoz was not [the merchants’] employee” because, unlike the employees in Borello, he “held himself out in business, invested substantial capital and equipment, employed over 180 workers, sold produce through four unrelated merchants, enjoyed an opportunity for profit or loss dependent on his business acumen and market conditions, and had indeed made a profit in prior years operating in the same manner.” (Martinez, supra, 49 Cal.4th at p. 73.) There was no question that the merchants “suffered or permitted” Munoz to provide services and that they “engaged” him by negotiating his rate of pay (i.e., exercised control over his wages). If this Court had intended the result reached here by the courts be law, it would have found Munoz to be an employee of the merchants. Instead, this Court applied only the commonlawtest, and found Munoz to be an independent contractor. (/d.) Limiting itself to the commonlaw test would have made no sense if the Martinez Court had indeed intended to announce the “suffer or permit” and “exercise control” standards as two new tests for determining employeestatus. -16- 2. As Martinez Shows, The Wage Order Definitions Were Not Meantto Distinguish Employees from Independent Contractors. The Martinez analysis of the history behind the IWC’s definition of “employer” illustrates that the subsumed definitions of “suffer or permit” and “control over wages, hours, or working conditions” were not intended to distinguish employees from independent contractors. With respect to the “suffer or permit” standard, Martinez explained that the standard arose from situations in which a child was not formally “employed” but was nevertheless “permitted” to provide labor, such as a child “paid by coal miners to carry water” or “a boy hired by his father to oil machinery.” (Martinez, supra, 49 Cal.4th at pp. 58, 69.) The “suffer or permit” language allowed for the imposition of criminal sanctions against the employers of the coal miners and fathers for employing children in their businesses. It also imposedcivil liability against those same employers for injuries suffered by the child employees. (See id. at p. 58.) Under that definition, “[a] proprietor who knowsthat persons are working in his or her business without having been formally hired, or while being paid less than the minimum wage, clearly suffers or permits that work by failing to prevent it, while having the power to do so.” (/d. at p. 69.) As such, the standard was meant to encompass persons—admitted employees—working in “irregular working relationships the proprietor of a business might otherwise disavow.” (/d. at p. 58.) It was not even contemplated that child laborers could be independent contractors. The “suffer or permit” standard wascreated to determine who wasthe employerofthe children. The “control over wages, hours, or working conditions” standard was also not meant to distinguish independent contractors from employees. Instead, as explained in Martinez, that standard was implemented to address “situations in which multiple entities control different aspects of the -17- employment relationship, as when one entity, which hires and pays workers, places them with other entities that supervise the work.” (/d. at p. 59 [emphasis added].) Specifically, the IWC intended the definition to identify as “employers” both “temporary. employment agencies and employers who contract with such agencies to obtain employees.” (ld. [quoting [WC Statement as to the Basis for Wage Order No. 16 Regarding Certain On-site Occupations in the Construction, Drilling, Mining, and Logging Industries (Jan. 2001), at p. 5][emphasis added].) In other words, this standard was meant to identify who shared control over an admitted employee. No thought was given to replacing the common law test for distinguishing independent contractors from employees. In sum, neither of the definitions of “employ” that are subsumed within the [WC’s definition of “employer” (and that were relied upon by Respondent and the Second District) were ever intended to distinguish independent contractors from employees. As such, neither the Martinez opinion, nor the Wage Orders’ definition of “employer,” shed any light on that question of status. The Second District’s reliance on Martinez as determinative of independent contractor status was therefore erroneous. 3. The IWC Lacks Power to Regulate Independent Contractors. As Martinez correctly explains, the initial authority that was conferred by the Legislature on the IWC was broad.’ But, that authority was not so broad as to give the IWCthe powerto redefine the scope ofits own authority. Rather, the IWC’s power is limited by the California Constitution and California Labor Code. (See Martinez, supra, 49 Cal.4th at p. 61 [“an administrative agency may not, under the guise ofits rule > As this Court has previously noted, the “Legislature defunded the IWC in 2004, however its wage orders remain in effect.” (Peabody v. Time Warner Cable, Inc. (2014) 59 Cal. 4th 662, 667, fn. 3.) -18- making power, abridge or enlarge its authority or exceed the powers given to it by statute”].) The IWC’s authority is limited to “employees.” It has no authority over independentcontractors. Asthis Court explained in Martinez, “the scope of [WC’s delegated authority is, and always has been, over wages, hours and working conditions. For the IWC to adopt a definition of ‘employer’ that brings within its regulatory jurisdiction an entity that controls any one of these aspects of the employment relationship makes eminently good sense.” (Martinez, supra, 49 Cal.4th at p. 59.) Although not explicitly stated in Martinez (because it was unnecessary in an opinion addressing only who qualifies as an “employer”) the “wages, hours and working conditions” over which the IWC has authority are limited to employees only—asthe use of the term “wages” would suggest. This limitation is made explicit in the California Constitution and the California Labor Code. The California Constitution was amended in 1914 to confirm the authority of the Legislature to establish the IWC. That amendment framed the original scope of the IWC’s authority as being to “provide for the establishment of a minimum wage for women and minors and . . provide for the comfort, health, safety and general welfare of any and all employees.” (Id. at p. 54, fn. 20 [quoting former Cal. Const., art. XX, § 17 1/2][emphasis added].) Although the [WC’s authority was later expanded to include male employees as well, that authority was andisstill limited to “provid[ing] for minimum wagesand for the general welfare ofemployees. . . (See Jd. at p. 54 & fn. 20 [quoting Cal. Const., art. XIV, § 1][emphasis added].) The California Labor Code also clearly identifies the scope of the IWC’s authority as being limited to “employees in this state.” (See Cal. Labor Code §1173 [emphasis added].) As Martinez explained, this grant of authority empowered the IWC to adopt rules and regulations within its mandate to protect “employees.” -19- This Court has upheld IWC regulations that exclude restaurant servers’ tips from the definition of minimum wage; that define “hours worked” as including time during which an employeeis “subject to the control of an employer,” even if not actually working; and that exempt outside sales employees from entitlement to overtime wages, but only if they work more than half of their time away from the employer’s place of business. (Martinez, supra, 49 Cal.4th at p. 62.) However, the common link among these judicially-upheld regulations is that they define the hours and wages of employees. All the regulations assume the existence of “employees.” None of them tackle the different question of who is—and whois not—an employee for purposes of California wage and hourlaws. The IWC could never presumeto redefine the constitutional limits on its own authority. As noted above, the constitutional limit of the IWC’s authority was defined in 1914 to extend only to “any and all employees.” Although not explicitly defined in the California Constitution, the term “employees” was clearly an understood term in 1914. The standards of “suffer or permit” and “exercise control over wages, hours, or working conditions” appeared for the first time in IWC Wage Orders issued in the years 1916 and 1947, respectively. (Ud. at pp. 50, 57, 59 [citing IWC former wageorder No.1, “Fruit and Vegetable Canning Industry” (Feb.29, 1916) sections 1-5 (IWC, approved minutes for Feb. 14, 1916, meeting); IWC former wage order No. 1R, “Wages, Hours, and Working Conditions for Women and Minors in the Manufacturing Industry” (June 1, 1947) section 2(f)].) Those standards cannot be interpreted to modify the earlier adopted constitutional limitation of [WC jurisdiction to “employees.” To hold otherwise would be to find that the [WC has unilaterally amended the California constitution, something it clearly lacks the authority to do. (See Rippon v. Bowen (2008) 160 Cal.App.4th 1308, 1313 [“Article XVIII of the California Constitution allows for amendment of the Constitution by the -20- Legislature orinitiative, and revision of the Constitution by the Legislature, or a constitutional convention. There is no other method for revising or amending the Constitution.”].) Cc, Applying the Holding of Martinez to Determinations of Independent Contractor Status Would Have Extreme and Bizarre Consequences. Underthe Second District’s interpretation of Martinez, if a person or company “suffers or permits” an individual to perform workor “exercises control over the wages, hours, or working condition” of a worker, that worker is an employee, not an independent contractor. (Op. at pp. 4, 10-11, 14.) Under this interpretation, it is not an exaggeration to say that an independent contractor relationship would no longer be permissible in California. Instead, all persons who perform services would automatically be considered employees. Although the Second District referred to these same arguments in Dynamex’s briefing below as “overblown rhetoric,” neither the Second District, nor Respondent attempted to explain how the independent contractor relationship can continue to exist in California, under a “suffer or permit” definition of employment. It cannot. The terms “suffer” and “permit” are extremely broad. As explained in the Martinez opinion, these terms both essentially mean to know that work is beingperformed and fail to prevent such work. (See Martinez, supra, 49 Cal.4th at p. 58 [“The standard thus meant that the employer ‘shall not . . . permit by acquiescence, nor suffer by a failure to hinder.”].) By definition, one cannot hire an independent contractor to perform work without “suffering and permitting” that work to be done. Applying the Second District’s ruling to the misclassification question would, in virtually every circumstance, mean that a person whois asked to provide services would -21- become an employee for the purposes of claims arising under the Wage Orders. Even if the “suffer or permit” standard were ignored, the “exercise control over wages, hours or working conditions” standard would have the same effect. It is hard to imagine how one could contract with another to perform services without “exercising control” over that person’s compensation or hours or working conditions. The “exercise control”test is far broader than the common-law control test, which depends primarily on the "right to control the manner and means of accomplishing the result desired." (Ayala, supra, 59 Cal. 4th at p. 531; Borello, supra, 48 Cal.3d at p. 350 [quoting Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946].) All service recipients either explicitly or implicitly authorize the remuneration their service providers receive, even ifjust by agreeing to pay what the provider requests. Similarly, it would be extremely rare for a service recipient to not have some say in the “hours” worked by an independent contractor. For example, certainly a homeownerhiring a plumberto fix a leaking toilet would define to some extent when that work is to be performed. By directing the plumberto start “as soon as possible, before the bathroom floods!” or informing the contractor that work cannot begin before 8 a.m. each day, the homeownerexercises control over the “hours” worked. Even if the plumber then takes over and makesall decisions about how, when and at what costthe toilet is fixed, the plumber would still come within the Second District’s approved test for defining “employee.” Adoption of the Second District’s test would cause a fundamental shift in the California economy. Virtually every sole proprietor would be converted to an “employee” (albeit an employee of many successive “employers”). Every plumber, landscaper, artist, consultant, private sector court reporter, and hundredsof other categories of service providers—all of -22- whom have long been considered independent contractors under the common law definition—would now be “employees” of the persons and businesses for whom they perform services. If these standards in fact apply to any claim falling within the scope of the IWC Wage Orders—asthe Second District in this case implied—that meansindividuals and companies who, for example, hire a roofer to replace the roof on their home or business could now be held liable to the roofer or penalized by the California Labor Commissioner for, among other things, doing any of the following: (1) failing to provide tools and equipment necessary for the performance ofthe roofer’s work, unless the roofer is paid at least twice the minimum wage, in which case the roofer could be required to provide hand tools and equipment customarily required by the trade (Wage Order No.9, Section 9(B)); (2) failing to pay the roofer one and one-half (1%) times the painter’s regular rate of pay for all hours worked in excess of eight (8) hours, up to and including 12 hours, in any workday andforthe first eight (8) hours worked on the seventh (7") consecutive day of work in a workweek and double (2 times) the roofer’s regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight (8) hours on the seventh (7") consecutive day of work in a workweek (/d., Section 3(A)). (3) deducting any amount from the compensation provided to the roofer for damage to the rest of the structure—unless the breakage was caused by a dishonest, willful, or grossly negligent act of the roofer (/d., Section 8); (4) failing to keep records of all of the following information—in English—for at least 3 years following the termination of the relationship Ud., Section 7(A)): -23- (a) The full name, home address, occupation, and social security numberofthe roofer. (b) Time records showing whenthe roofer began and ended each work period. (c) The total amount paid to the roofer each “payroll period,” including accounting for the value of board, lodging, or other compensation actually furnished to the roofer. (d) Total hours worked by the roofer in the “payroll period” and the applicable rates paid for those hours. (e) Records showing meal periods, split shift intervals and total daily hours workedby the roofer. (5) failing to provide suitable lockers, closets or the equivalent for the safekeeping of the roofer’s outer clothing during work periods (/d., Section 13(A)); (6) failing to provide suitable resting facilities for the roofer (/d., Section 13(B)); (7) failing to provide a suitable seat to the roofer during times when the roofer could perform work from a seated position (U/d., Section 14); (8) failing to maintain a temperature of not less than 68° in the “toilet rooms,” resting rooms, and change rooms used by the roofer (/d., Section 15(C)); (9) failing to provide a clock within a reasonable distance of the roofer’s work area (/d., Section 7(D)); (10) failing to provide the roofer with meal and rest periods (/d., Sections 11 and 12); (11) failing to pay the roofer an extra hourofpay if the roofer works a split shift on any given day (/d., Section 4(C)); (12) failing to pay the roofer minimum wage(/d., Section 4); and 24 - (13) failing to provide the roofer on a semimonthly basis or at the time of each “payment of wages” with a detachable or separate itemized statement showing (/d., Section 7(B)): (a) All deductions from the amountspaid to the roofer; (b) The inclusive dates of the period for which the rooferis being paid; (c) The name of the roofer or the roofer’s social security number; and (d) The nameof the “employer.” In other words, instead of negotiating a specified price for performance of a specific service, with the opportunity for profit or loss belonging to the independent contractor, all persons providing services in California would receive an hourly wage (unless they are exempt “employees”). And, all persons requesting work to be done—regardless of the scope or duration of that work—must now become or hire payroll experts and employment lawyers to ensure they do not violate California wage and hourlaws. The Second District appears to believe—without explaining how— that the “suffer and permit” and “control over wages, hours or working conditions” standards could somehow be implemented without forcing most independent contractors to become employees. Even if that were true—which it is not—strange and inconsistent statutory interpretations would still result. To illustrate, the Second District states that its new standards apply only to claims “falling within the scope of [the] Wage Order[s].” (Op. at pp. 12, 16.) If Martinez, in fact, defined who qualified as an ermployee, such a limitation might have surface appeal because the Martinez opinion only addressed definitions contained in the Wage Orders. However, followed to its logical conclusion, such a limitation would result in the application of different tests to determine whether a worker was an -25- employee or independent contractor for claims arising under the same division, part, and even chapter of the Labor Code. For example, a worker could be an employee under the “suffer or permit” standard for the purposes of Labor Code section 1194 (which provides a private right of action for recovery of minimum and overtime wages), but not be an employee for claims under Labor Codesections 201- 203 (which require the immediate payment of outstanding wages upon termination), because Sections 201-203 are not encompassed in the Wage Orders. Thus, differing definitions of employee would be applied even though Section 1192 and Sections 201-203 all appear in the same Division of the Labor Code—Division 2, entitled “Employment Regulation and Supervision.” Dozens of other Labor Code sections in Division 2 are likewise not covered by IWC Orders. Individuals could be treated as employees for some sections of the Labor Code, but as independent contractors under other sections. Besides being inconsistent with common sense, this result would engender massive confusion in the courts and administrative agencies. Even more confusingly, as the Second District detailed in its opinion, the “suffer or permit” standard would only be applied to some expense reimbursement claims brought under Section 2802, such as claims for reimbursement for uniforms or for tools and equipment. But other expense reimbursement claims, such as for gas mileage, wouldstill be subject to the common law definition. In other words, a worker would be defined as an employee for some business expenses, and as an independent contractor for other expenses. Operating a business under those rules would be a procedural nightmare. Such bizarre results were never contemplated by the rationale of the Martinez opinion. - 26 - D. The Common Law Test for Determining Independent Contractor Status Should Continue to be Applied to Claims Encompassed by the Wage Orders. Putting aside both Martinez and the Wage Order definition of “employer,” we are left with the fact that the California Constitution, Labor Code section 1194, and manyother sections of the Labor Code use the term “employee” without defining it. As this Court has previously stated, when a statute refers to an “employee” without defining the term, courts have generally applied the common law test of employment to that statute. (See Metropolitan Water Dist. v. Superior Court (2004) 32 Cal.4th 491, 500, 9 Cal.Rptr.3d 857, 84 P.3d 966.) That is what should continue to be done in this case. Fortunately, Borello and its progeny provide clear guidance on the common law. Under Borello, the California courts and administrative agencies have successfully distinguished between employees and independentcontractors for 25 years. IV. CONCLUSION For these reasons, Dynamex respectfully urges the Court to grant this Petition and resolve the important questions of law it presents. DATED: November 24,2014 LITTLERree 7 /By: g| ROBERT G. HUCTENG MONM.OTT PHILIP A. SIMPKINS Attorneys for Defendant and Petitioner DYNAMEX OPERATIONS WEST, INC. -27- DATED: November24, 2014 SHEPPARD MULLIN RICHTER & AaLLP By: (foM. BRONCHETTI PAUL S. COWIE Attorneys for Defendant and Petitioner DYNAMEX OPERATIONS WEST, INC. - 28 - CERTIFICATE OF WORD COUNT Pursuant to CRC 8.204(c) and 8.486(a)(6), the text of this petition, including footnotes and excluding the cover information, table of contents, tables of authorities, signature blocks, and this certificate, consists of 7,586 words in 13-point Times New Roman type as counted by the word- processing program used to generate the text. DATED: November 24,2014 =LITTLER MENDELSO By: RGBERT G. HULTENG | MON M. OTT PHILIP A. SIMPKINS Attorneys for Defendant and Petitioner DYNAMEX OPERATIONS WEST, INC. Filed 10/15/14 CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATEDISTRICT DIVISION SEVEN DYNAMEX OPERATIONS WEST,INC., B249546 Petitioner, (Los Angeles County Super. Ct. No. BC332016) V. THE SUPERIOR COURTOF LOS ANGELES COUNTY, Respondent; CHARLESLEEet al., Real Parties in Interest. ORIGINAL PROCEEDINGSin mandate. MichaelL. Stern, Judge. Petition granted in part and deniedin part. Littler Mendelson, Robert G. Hulteng, Damon M.Ott; Sheppard Mullin Richter & Hampton, Ellen M. Bronchetti and Paul S. Cowie, for Petitioner Dynamex Operations West, Inc. No appearance for Respondent. Pope, Berger & Williams, A. Mark Pope; Glancy Binkow & Goldberg, Kevin Ruf; Boudreau Williams and Jon R. Williams for Real Parties in Interest, Charles Lee and Pedro Chevez. Charles Lee and Pedro Chevez were hired by Dynamex Operations West, Inc. (formerly Dynamex,Inc.) (Dynamex), a nationwide courier and delivery service, as drivers to make deliveries of packages, letters and parcels to Dynamex customers. Prior to 2004 Dynamexhadclassified its California drivers as employees and compensated them subjectto this state’s wage and hour laws. In 2004 Dynamex convertedthe status of all drivers from employee to independent contractor. This lawsuit wasfiled in April 2005 alleging that drivers, as a practical matter, continued to perform the sametasks as they had whenclassified as employees with no substantive changes to the means of performing their work or the degree of control exercised by Dynamex and,as a consequence,the reclassification of Dynamex drivers violated California law. The plaintiff, Charles Lee, sought to represent approximately 1,800 drivers engaged by Dynamex as independent contractors. After its initial denial of class certification was reversed by this court, respondent superior court certified the proposed class in 2011. Overthe course of the next two years, Dynamex twice moved to decertify the class. When its second motion was denied, Dynamexfiled this petition for a writ of mandate, arguing the superior court had improperly adopted the definition of “employee” found in Industrial Welfare Commission (IWC) wage orders’ to ascertain thestatus of class members (see Martinez v. Combs (2010) 49 Cal.4th 35 (Martinez)), and had failed to use the commonlawtest for distinguishing between employees and independent contractors discussed in S.G. Borello & Sons, Inc. v. Department ofIndustrial Relations (1989) 48 Cal.3d 341 (Borello). According to Dynamex,if the Borello commonlawtest, rather than the IWCstandard approved in Martinez, is applied, the class must be decertified because the predominanceofindividual issues relevant to that test would makeit infeasible to litigate the plaintiffs’ claims as a class action. ' The IWCis the state agency empowered to regulate wages, hours and working conditions through wage orders governing specific industries and occupations. (See Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1027; Ramirezv. Yosemite Water Co. (1999) 20 Cal.4th 785, 795.) Weissued an order to show cause why respondent superior court should not be compelled to vacate its order denying the motionto decertify the class. We now grant the petition in part. We conclude the superior court correctly allowed plaintiffs to rely on the IWCdefinition of an employmentrelationship for purposes of those claims falling within the scope of Wage Order No. 9-2001 (Wage Order No. 9). (Cal. Code Regs., tit. 8, § 11090.) With respect to those claimsfalling outside the scope of Wage Order No.9, the commonlaw definition of employee will control. As to those claims, we grant the petition to allow the superior court to reevaluate whether, in light of the Supreme Court’s recent decision in Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522 (Ayala), class certification remains appropriate by focusingits analysis “on differences in [the defendant’s] right to exercise control” rather than “variations in how that right was exercised.” (/d. at p. 528.) FACTUAL AND PROCEDURAL BACKGROUND 1. The Motions To Certify and To Decertify the Class Lee and his co-plaintiff, Pedro Chevez, are former same-day delivery drivers who were engaged by Dynamexas independent contractors. The operative second amended complaint alleges Dynamex’s classification of drivers as independent contractors rather than employees violated provisions of Wage Order No.9, as well as various sections of the Labor Code,’ andit had engagedin unfair and unlawful business practices under Business and Professions Code section 17200. Lee’s first motion for class certification, filed in November 2006, was denied on two grounds—theinascertainability of the class and a lack of commonissues. We reversed that ruling. (Lee v. Dynamex, Inc. (2008) 166 Cal.App.4th 1325.) Based on the Supreme Court’s intervening decision in Pioneer Electronics (USA), Inc. v. Superior Court (2007) 40 Cal.4th 360, we concludedthetrial court had improperly denied Lee’s “motion to compel Dynamexto identify and provide contact information for potential putative class members,” a ruling that “improperly interfered with Lee’s ability to Statutory references are to the Labor Code unless otherwise indicated. establish the necessary elementsfor class certification ....” (Lee v. Dynamex, supra, 166 Cal.App.4th at p. 1329.) In June 2009 Lee filed a second motion for class certification, which was granted. The certified class contained four subclasses and several limited exclusions involving drivers who hadhired otherdrivers to perform services for Dynamex, worked for other companies while also driving for Dynamex or transported certain hazardous items or transported freight in interstate commerce. Because of the lack of recordssufficient to identify membersofthe class, the parties agreed to send questionnaires to each putative class memberseeking information as to class membership. Thetrial court entered a stipulated order that the class was only “conditionally” certified pending the questionnaire process. According to Dynamex, the questionnaire responses proved the unworkable nature of the proposed class. In December 2010 it moved to decertify the class on the grounds no records existed to identify class members; individualized inquiries were necessary to determine employmentstatus; and contradictions in sworn testimony demonstrated the need for cross-examination to avoid a violation of its due process rights. The trial court granted the motion but allowedthe plaintiffs to change the class definition one more time. The court subsequently vacated the order decertifying the class and continued the motion to allow plaintiffs to file a third motion for class certification. Relying on the Supreme Court’s then-recent decision in Martinez, supra, 49 Cal.4th 35, Lee and Chevez contended drivers met the test for employment so long as Dynamex knewthe drivers were providing services or negotiated the rates paid to the drivers: In other words, adherence to the commonlaw rule described in Borello was not necessary to certification of the proposed class. The superior court agreed and certified the class.” 3 Thecertified class was defined as “Personsclassified as independent contractors whoperformed pick-up or delivery services for Dynamex Operations West, Inc. [“DYNAMEX”], in the State of California between April 15, 2001 and the present time using their personally ownedor leased vehicles with Gross Vehicle Weight Ratings of less than 26,000 Ibs.” Subclass 1 was defined as “Drivers who used vehicles with Gross Vehicle Weight Ratings (GVWR)of 10,000 Ibs or less to perform services for 4 In December 2012 Dynamex renewedits motion to decertify the class on the ground intervening law had demonstrated the error of the court’s reliance on Martinez. The superior court denied the motion to decertify. 2. The Petitionfor Writ ofMandate On June 24, 2013 Dynamexpetitioned this court for a writ of mandate directing the superior court to vacate its ruling denying the motion to decertify the class and to enter a new order decertifying the class. In responseto ourinvitationto file a preliminary opposition to the petition, real parties in interest Lee and Chevez submitteda letter stating they strongly disagreed with Dynamex’slegal arguments but supportedits request that we issue an order to show cause and review the issues presented in the writ petition at this time. Accordingly, on July 10, 2013 we issued an order to show cause to determine whetherthe superior court erred in ruling a class may becertified under the IWC definition of employee as construed by the Supreme Court in Martinez or, as Dynamex contends, may proceed only under the commonlawtest discussed in Borello. Lee and Chevez filed their written return on October 8, 2013; Dynamexfiled a reply on November 15, 2013. Pursuant to California Rule of Court, rule 8.200(a)(4), on July 7, 2014 this court requested that the parties file supplementalletter briefs addressing the effect, if any, of the Supreme Court’s recent decisions in Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1 (Duran) and Ayala, supra, 59 Cal.4th 522. Supplemental briefs were received in August 2014,’ and oral argument was heard on October 3, 2014. We now grantthe petition in part. DYNAMEX.” Subclass 2 was defined as “Drivers who used vehicles with Gross Vehicle Weight Ratings (GVWR)in excess of 10,001 Ibs and less than 26,000 lbs to perform services for DYNAMEX.” Theclass excluded drivers who had not returned questionnaires; provided services for Dynamex while employed or subcontracted to another person or entity; provided services for Dynamex through their own employeesor subcontractors; performed services for Dynamex and unrelated delivery services; or performed services for Dynamexand their own personal customers. 4 Dynamexarguedin its letter brief that Ayala wasirrelevant to the issues raised in its petition but that Duran, which involved the manageability of individual issues in evaluating class certification, supported its argument the superior court had erred in 5 DISCUSSION 1. Standard ofReview To prevail on a motionto certify a class, “[t]he party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerousclass, a well-defined community ofinterest, and substantial benefits from certification that render proceeding asa class superior to the alternatives. [Citations.] ‘In turn, the “community of interest requirement embodiesthree factors: (1) predominant common questions of law orfact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.”’” (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021; accord, Ayala, supra, 59 Cal.4th at pp. 529-530.) “‘The certification question is “essentially a procedural one that does not ask whether an actionis legally or factually meritorious.”’” (Brinker, at p. 1023.) Nonetheless, “a court may ‘consider[] how various claims and defenses relate and may affect the course ofthelitigation’ even though such ‘considerations . .. may overlap the case’s merits.’” (Ud. at p. 1024.) Wereview trial court’s ruling on a certification motion, as well as a decertification motion, for abuse of discretion and generally will not disturb it “‘“unless (1) it is unsupported by substantial evidence, (2) it rests on impropercriteria, or (3) it rests on erroneous legal assumptions.””” (Ayala, supra, 59 Cal.4th at p. 530; see Harper v. 24 Hour Fitness, Inc. (2008) 167 Cal.App.4th 966, 973-974.) As in Ayala, “the central legal issue” presented here is “whether putative class members are employees for purposesofthe provisions under which they sue.” (Ayala, at p. 530.) “If they are employees, [Dynamex] owes them various duties that it may not havefulfilled; if they are not, no liability can attach.” (/d. at p. 530.) denyingits decertification motion. Lee and Chevez, on the other hand, insisted Duran providedlittle guidancesince it primarily concernedthe use ofstatistical sampling in the trial of a class action lawsuit, but that Ayala has direct application to this case. 2. Common Law Principlesfor Identification ofan Employee Relationship “Under the commonlaw,‘“{t]he principal test of an employmentrelationshipis whether the person to whom service is rendered hasthe right to control the manner and means of accomplishing the result desired.”’ [Citations.] What matters is whether the hirer ‘retains all necessary control’ over its operations. [Citation.] ‘“[T]he fact that a certain amount of freedom ofaction is inherent in the nature of the work does not change the character of the employment where the employerhas general supervision and control overit.”’ [Citations.] Perhaps the strongest evidence ofthe right to control is whether the hirer can discharge the worker without cause, because ‘[t]he powerofthe principal to terminate the services of the agent gives him the meansofcontrolling the agent’s activities.”” (Ayala, supra, 59 Cal.4th at p. 531, quoting, inter alia, Borello, supra, 48 Cal.3d at p. 350.) Secondary indicia of employmentstatus under the common law include “‘(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the workis usually done underthe direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whetherthe principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the workis a part ofthe regular business of the principal; and (h) whether or not the parties believe they are 999 creating the relationship of employer-employee.’” (Ayala, at p. 532, quoting Borello at p. 351.) In Ayala the Supreme Court revisited the common law definition of an employee relationship in the same context asis at issue in this case—that is, whether a class may be certified in a wage and houraction alleging the defendant had misclassified its employees as independent contractors. Thetrial court had deniedthe plaintiffs’ motion to certify the putative class of newspapercarriers hired by the Antelope Valley Press to deliverits newspaperafter finding commonissues did not predominate. (Ayala, supra, 59 Cal.4th at p. 529.) The trial court reasoned Bore/lo’s commonlawtest for an employment relationship would require “heavily individualized inquiries” into the newspaper’s control over the carriers’ work. (Ayala, at p. 529.) While the case was pending beforeit, the Supreme Court directed the parties to submit supplementalbriefs discussing the relevance of Martinez and IWC Wage OrderNo. 1-2001, subdivision 2(D)-(F) to the issues in the case. (Ayala, at p. 531 ) Althoughraising the question presented here,that is, in evaluating whether commonissues predominate onthe certification question a class plaintiff may rely on the applicable [WC wage order to determine employeestatusoris instead limited to the commonlawtest, the Supreme Court reversed the trial court’s ruling without resolving it. Because the plaintiffs had proceeded under the common law definition, the Court limited its discussion to whetherplaintiffs’ claims were susceptible to proof on a classwide basis underthat test. Finding the trial court should have focused on “differences in [the defendant’s] right to exercise control,” rather than “variations in how that right was exercised” (id. at p. 528) in concluding individual issues predominated, the Court reversed the order denying class certification and remandedthe case for reconsideration of the motion underthe correct legal standards (id. at p. 540). 3. Martinez and the IWC Definition ofan Employment Relationship In Ayala the Court found it unnecessary to discussthe statutory context of the plaintiffs’ claims,° focusing instead on how court should approach the question of ° The order for supplemental briefing also cited Sotelo v. Medianews Group,Inc. (2012) 207 Cal.App.4th 639, 660-662, and Bradley v. Networkers Internat., LLC (2012) 211 Cal.App.4th 1129, 1146-1147, cases we discuss below. 6 Responding to Justice Chin’s reservations, the Court stated: “‘As Justice Chin’s concurrence notes, Borello recognized ‘the concept of “employment” embodiedin the {Workers’ Compensation] Act is not inherently limited by commonlaw principles’ (Borello, supra, 48 Cal.3d at p. 351) and identified a handful of other considerations that might ‘overlap those pertinent under the commonlaw’(id. at p. 354; see id. at pp. 351- 355 [discussing additional considerations relevant in light of the remedial purposesofthe statutory schemethereat issue]). Strictly speaking, however, those further considerations are not part of the commonlaw test for employee status. The concurrence’s assertion they are relevant here (conc. opn. of Chin, J., post, at pp. 548-550) rests on the legal assumptionthey play role in deciding employee status for wage claims, an assumption wedecline to embrace, leaving for another day resolution ofits validity. (See Martinez{, supra, | 49 Cal.4th at pp. 64, 73.)” (Ayala, supra, 59 Cal.4th at p. 532,fn. 3.) 8 certification when an applicable standard (there, the commonlaw test for an employment relationship) appears to implicate individualized factual issues that might makelitigation of the case as a class action unmanageable. (See Ayala, supra, 59 Cal.4th at pp. 537- 538.) In Martinez, on the other hand, the Court discussed at length the impact of the IWC regulatory scheme on whether an employmentrelationship had arisen between a group of farm laborers and the merchants who boughtthe produce from the farmer who employed the laborers. (See Martinez, supra, 49 Cal.4th at pp. 52-57.) Although the Court concluded the produce merchants were not joint employers of the farm laborers, it made clear IWC wageorders are to be accorded the same weight as statutes and the applicable wage order defines the employmentrelationship for wage and hour claims within its scope. (/d. at pp. 52, 61.) The farm laborers in Martinez sued the produce merchants undersection 1194, which creates a private right of action on behalf of employees seeking to recover unpaid wages.’ Because this Labor Code section does not specify whois liable underits terms, the Supreme Court analyzed the legislative history associated with its adoption. In short, section 1194 was part of 1913 legislation that also created the IWC, which was empoweredto issue wage orders governing specific industries and occupations. (Martinez, supra, 49 Cal.4th at pp. 54-56; see also Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th at p. 1026 [“[nJearly a century ago, the Legislature responded to the problem of inadequate wages and poor working conditions by establishing the IWC and delegating to it the authority to investigate various industries and promulgate wage orders fixing for each industry minimum wages, maximum hours of work, and conditions of labor”].) Since 1913, the Court observed, “the Legislature has ‘restated the commission’s responsibility in even broader terms’ [citation], charging the IWC with the 7 Section 1194, subdivision (a), provides: “Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wageorthelegal overtime compensation applicable to the employeeis entitled to recoverin a civil action the unpaid balanceofthe full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs ofsuit.” ‘continuing duty’ to ascertain the wages, hours and labor conditions of ‘all employees in this state,’ to ‘investigate [their] health, safety, and welfare,’ to ‘conducta full review of the adequacy of the minimum wageat least once every two years’ [citation], and to convene wage boards and adopt new wageorders if the commission finds ‘that wages paid to employees maybe inadequate to supply the cost of proper living’ [citations].” (Martinez, at p. 55.) The Court concluded, “[A]n examination of section 1194in its full historical and statutory context shows unmistakably that the Legislature intended to defer to the IWC’s definition of the employmentrelationship in actions underthe statute.” (Id. at p. 64.)° The IWC wageorders share commondefinitions and schemes,including the definition of employment: Likeall other wage orders, Wage Order No.9, applicable to the transportation industry, defines the word “employ”as “to engage, suffer, or permit to work.” (Cal. Code Regs., tit. 8, § 11090, subd. 2(D).) An employeris defined as any person “whodirectly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” (/d., § 11090, subd. 2(F).) This is the same language examined by the Supreme Court in Martinez. (See Martinez, supra, 49 Cal.4th at p. 64.) Parsing this languagein light of the IWC’s statutory purposes, Martinez concludedthat “[t]o employ, then, under the IWC’s definition, has three alternative definitions. It means: (a) to exercise control over the 8 The Legislature defunded the IWC in 2004; however, its wage orders remain in effect. (Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 667, fn. 3.) There are currently 18 wage orders. Sixteen relate to specific industries or occupations: manufacturing; personal service; canning, freezing and preserving; professional, technical, clerical, mechanical andthe like; public housekeeping; laundry, linen supply and dry cleaning; mercantile; product handling after harvest (covering commercial packing sheds); transportation; amusementand recreation; broadcasting; motion picture; preparation of agricultural products for market (on the farm); agricultural; household; and construction,drilling, logging and mining. There is also one general minimum wage order, and one order implementing the Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999. (See Cal. Code Regs., tit. 8, §§ 110al.00-11170; Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th at p. 1026; Martinez, supra, 49 Cal.4th at p. 57.) 10 wages, hours or working conditions, or (b) to suffer or permit to work,or (c) to engage, thereby creating a common law employmentrelationship.” (/bid.) Asis evident from the Martinez Court’s analysis,it is not inappropriate to rely on the commonlaw standard to determine whether an employmentrelationship exists for purposesofliability under section 1194. However, Martinez recognized that limiting plaintiffs to that test in actions under section 1194 and “ignoring the rest of the [WC’s broad regulatory definition would substantially impair the commission’s authority and the effectivenessof its wage orders.” (Martinez, supra, 49 Cal.4th at p. 65.) “One cannot overstate the impact of [this] holding on the IWC’s powers. Were weto define employmentexclusively according to the commonlawin civil actions for unpaid wages we would render the commission’s definitions effectively meaningless.” ([bid.) Borello in many ways foreshadowed Martinez’s embrace of the IWC definition. There, in holding that cucumber sharefarmers were not independent contractors excluded from coverage under the Workers’ Compensation Act, the Supreme Court explained, “The distinction between independent contractors and employees arose at commonlaw to limit one’s vicariousliability for the misconduct of a person rendering service to him.” (Borello, supra, 48 Cal.3d at p. 350.) As a matter offairness to the employer, his or her liability was premised on the extent to which the employer hadthe right to control the details of the employee’s service. (Jbid.) In the wake of 20th century industrialization, versions of this “control” test were imported into legislation designed to protect workers as an express or implied limitation on coverage. (/bid.) Courts struggling to apply this limited test to “the infinite variety of service arrangements” eventually embraced the cluster of secondary indicia discussed above to guide resolution of these questions. (Ibid., citing, inter alia, Rest.2d Agency, § 220; Tieberg v. UnemploymentIns. Appeals Board (1970) 2 Cal.3d 943, 949-950; Empire Star Mines Co. v. California Employment Com. (1946) 28 Cal.2d 33, 43.) Borello, however, recognizedthat the control test arose to meet the needs of employers and was not focused on protection of their employees: To accommodate this conceptual distinction, the Court instructed that the common law “*control-of-work-details’ test for determining whether a person rendering services to 1] another is an ‘employee’ or an excluded ‘independent contractor’ must be applied with deference to the purposesofthe protective legislation. The nature of the work, and the overall arrangement betweenthe parties, must be examined to determine whether they comewithin the ‘history and fundamental purposes’ofthe statute.” (Borello, at pp. 353- 354.) Martinez, in effect, fills the gap between the common law employer-focused approach andthe need for a standard attuned to the needs and protection of employees. Asthe Court recognized, the IWC wageorders provide an employee-centric test gauged to mitigate the potential for employee abusein the workplace: “[T]he scope of the IWC’s delegated authority is, and has always been, over wages, hours and working conditions. [Citations.] For the [WC to adopt a definition of ‘employer’ that brings within its regulatory jurisdiction an entity that controls any one of these aspects of the employment relationship makes eminently good sense.” (Martinez, supra, 49 Cal.4th at p. 59.) “Fora court to refuse to enforce such provision in a presumptively valid wage order[citation] simply becauseit differs from the common law would thus endanger the commission’s ability to achieve its statutory purposes.” (/d. at p. 65.) 4. The Trial Court Did Not Err in Allowing Certification Based on the IWC Definition ofEmployee as to Claims Falling Within the Scope of Wage Order No. 9 Dynamexcontendsthe superior court’s ruling is an outlier and insists no other court has resorted to the first two prongs of the IWC definition of employee in certifying a class in a wage and hour case. Underthis “extreme view,” Dynamexasserts, “independent contractors will no longer exist in California.” Contrary to Dynamex’s overblownrhetoric, the decisionsit cites as rejecting application of Martinez in fact confirm its broad sweep. In Futrell v. Payday California, Inc. (2010) 190 Cal.App.4th 1419, for instance, the court applied the IWC definition of employment because “Martinez governs our determination of the issues in the current case. [Citations.] Martinez teaches that, in actions under section 1194 to recover unpaid wages, an IWC wageorder governing a subject industry defines the employment 12 relationship, and thus who maybeheld liable—as an employer—for unpaid wages.” (Futrell, at p. 1429.) Although utilizing the [WC definition, the court affirmed summary judgmentin favor of the payroll companybecauseit did not exercise control over the plaintiff's wages, hours or working conditions; did not have the powerto cause or prevent him from working; and did not control any aspect of his job performance. (/d. at pp. 1431-1435; see also Aleksick v. 7-Eleven, Inc. (2012) 205 Cal.App.4th 1176, 1187- 1190 [applying Martinez to find defendant was not an employer even though no wage order involved]; Guerrero v. Superior Court (2013) 213 Cal.App.4th 912, 945-952 [applying Martinez to find public agency exercised effective control over provider wages; trial court erred in determining as a matter of law public agency wasnot an employerfor purposes of IWC wageorder].) Similarly, in Sotelo v. Medianews Group, Inc. (2012) 207 Cal.App.4th 639, a wage and hourclasscertification appeal, the appellate court recognized “the trial court should not havelimited itself to the test for a common law employmentrelationship because [the plaintiffs’] third cause of action, for violation of minimum wage and overtime laws, comes under Labor Code section 1194.” (/d. at pp. 661-662.) The Sotelo court concluded this error was harmlessin light of the trial court’s determination “that, even assumingthat putative class members were employees, commonissues did not predominatein the third cause of action.” (/d. at p. 662.) Echoing Sotelo’s analysis but reaching the opposite conclusion, the court in Bradley v. Networkers Internat., LLC (2012) 211 Cal.App.4th 1129 found commonissues of fact warranted certification of a class of telecommunications workers undereither the Borello or Martinez standard. With respect to seven causes of action—six of which were not based on section 1194—the court interpreted Martinez to apply to all claims brought under an IWC wageorder. (Bradley, at p. 1146.) Presaging the opinion in Ayala, the court explained: “Under[class certification] analysis, the focus is not on the particular task performed by the employee, but on the global nature of the relationship between the worker andthe hirer, and whether the hirer or the workerhadthe right to control the work. The undisputed evidence showed Networkers had consistent companywide policies applicable to all employees 13 regarding work scheduling, payments, and work requirements. Whetherthose policies created an employer-employeerelationship, as opposed to an independent contractor relationship, is not before us. Thecritical fact is that the evidence likely to be relied upon by the parties would be largely uniform throughoutthe class.” (Bradley, at p. 1 147.) Other decisions cited by Dynamex arose in contexts not subject to IWC wage orders and thus outside the scope of Martinez. Bowman v. Wyatt (2010) 186 Cal.App.4th 286, for example, wasa tort action that applied the commonlawtest to the question whetherthe tortfeasor was an employee or independent contractor of the defendant. In Angelotti v. The Walt Disney Co. (2011) 192 Cal.App.4th 1394 a stuntman sued Disney for injuries he had received on the set. The court affirmed summary judgmentin favor of Disneyafter finding the plaintiff was an employee and that workers’ compensation was his exclusive remedy. Neither of these cases involved a wage and hour claim within the scope of an IWC work order.’ 9 Dynamexcites several federal decisions that apply Bore/lo’s commonlawtest in determining whether an employeerelationship exists in a misclassification lawsuit without discussing the impact of Martinez. (See, e.g., Alexander v. FedEx Ground Package System, Inc. (9th Cir. 2014) 765 F.3d 981 [2014 U.S. App. Lexis 16585]; Ruiz v. Affinity Logistics Corp. (9th Cir. 2014) 754 F.3d 1093.) We, of course, are not bound by federal interpretations of California law. '0 Dynamexalso cites Monarrez v. Automobile Club ofSouthern California (2012) 211 Cal.App.4th 177, notwithstanding that review had been granted by the Supreme Court on February 13, 2013 (S207726), more than four monthsbeforeit filed its writ petition in this court. (See Cal. Rules of Court, rules 8.1105(e)(1) [unless otherwise ordered, an opinion is no longer considered published if the Supreme Court grants review], 8.1115(a) [with limited exceptions, a Court of Appeal opinionthat is not certified for publication “must not be cited or relied on by a court or a party in any other action”].) In any event, Monarrez, like Bowman, was tort action; the issue was whether a tow truck companyassisting the plaintiff, who was injured by a hit-and-run driver while being aided by the tow truck operator, was the actual or ostensible agent of the Automobile Club of Southern California or whether it was an independentcontractor. The Supreme Court ordered briefing in Monarrez deferred pendingits decision in Patterson v. Domino’s Pizza, LLC (2014) 60 Cal.4th 474, which held the defendant franchisor was entitled to summary judgmenton plaintiff's claim that it was vicariously liable for tortious conduct by a supervising employeeofa franchisee. 14 Dynamexalso cites Arnold v. Mutual ofOmaha Ins. Co.(2011) 202 Cal.App.4th 580 (Arnold) to demonstrate courts have rejected Martinez. In Arnold a nonexclusive insurance agent for Mutual of Omahasued the company seeking unpaid employee entitlements under the Labor Code. (/d. at p. 582.) Mutual of Omaha movedfor summary judgmenton the ground she wasan independentcontractor rather than an employee under the commonlaw test. (/d. at p. 583.) The agent contendedsection 2750 defined “employee” for purposes of her rights under section 2802.'! The appellate court rejected that argumentand affirmedthetrial court’s order granting summary judgment, relying in part on the application of the commonlawtest to a claim under section 2802 in Estrada v. FedEx Ground Package System, Inc. (2007) 154 Cal.App.4th 1,’” as well as its own conclusion that “section 2750 does not supply . . . a definition of ‘employee’that is clearly and unequivocally intended to supplant the commonlaw definition of employmentfor purposes of section 2802.” (Arnold, at p. 587.) As the court noted, “when a statute refers to an ‘employee’ without defining the term, courts have generally applied the commonlawtest of employmentto that statute.” (/d. at p. 586.) According to Dynamex, Arnold “referenced Martinez elsewhere inits opinion, but then determinedthat‘thetrial court correctly determined the commonlaw [Bore/lo]test " Section 2802, subdivision (a), provides: “An employershall indemnify his or her employeefor all necessary expenditures or losses incurred by the employee in direct consequenceofthe discharge of his or her duties, or of his or her obedienceto the directions of the employer, even though unlawful, unless the employee,at the time of obeying the directions, believed them to be unlawful.” Section 2750 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.” 2 Estrada, decided by our colleagues in Division Oneofthis court, was written nearly three years before the Supreme Court’s decision in Martinez. Applying Borello, Estrada concludedtheplaintiff FedEx drivers were employees rather than independent contractors: The court referred to the result as the “if it looks like a duck, walkslike a duck, swims like a duck, and quackslike a duck, it is a duck” test. (Estrada v. FedEx Ground Package System, Inc., supra, 154 Cal.App.4th at p. 9.) We havelittle doubt, if decided today, the Estrada court would follow Martinez and find the FedEx drivers were employees within the meaning and scope of Wage Order No.9. 15 of employment wasapplicable for purposes of Section 2802.’ The Arnold Court was clearly aware of Martinez.” However, the sole “reference” to Martinez in Arnold is the court’s citation of Reynolds v. Bement (2005) 36 Cal.4th 1075 as “disapproved” by Martinez “on another ground.” Thereis no discussion of Martinez or the IWCdefinition — because the plaintiff apparently did not contend she was covered by a wage order. Indeed, IWC wageorders exempt from coverage “persons employed in administrative, executive, or professional capacities”—personslike the plaintiff—with respect to certain mandates, including the right to reimbursementof particular expenses. (Cal. Code Regs., tit. 8, § 11040, subds. 1(A), 8 & 9.)'> Absent an applicable wage order, Arnold is not authority for the contention the commonlaw standard of employment governs claims in this case, which do involve a controlling wage order. (See Chevron U.S.A., Inc. v. Workers’ Comp. Appeals Bd. (1999) 19 Cal.4th 1182, 1195 [languagein judicial opinion is to be understood in accordance with the facts and issues before the court; an opinion is not authority for propositions not considered].) In sum, Dynamexhasfailed to convince us the superior court erred as a matter of law in denying its motion to decertify the class with respect to claims falling within the scope of Wage Order No. 9. The court properly applied Martinez in determining plaintiffs were employees within the meaning of that wage order." 8 Wage Order No. 4-2001 regulates wages, hours, and working conditions in professional, technical, clerical, mechanical and similar occupations but contains the same exemption for “persons employed in administrative, executive, or professional capacities” found in every wageorder. 4 Dynamexcontends, both in its briefs and at oral argument, that the holding in Martinez should be limited to determining whetheran entity is a joint employer—thatis, whether an individual who is unquestionably an employee of one entity may hold another entity liable for wages or other employment benefits not provided by the primary employer. Although that was the precise factual context in which the issue arose in Martinez, nothing in the case supports a limitation of this nature; and, as the foregoing discussion demonstrates, no other court has adoptedit. 16 5. The Trial Court Should Reevaluate in Light ofAyala Whether Class Certification Remains Appropriatefor Any Claims Falling Outside Wage Order No. 9 Lee and Chevez’s second amended complaint contains five causesofaction,all of whichare alleged to fall within the scope of Wage Order No. 9: (1) unfair business practices under Business and Professions Code section 17200 arising from violations of various Labor Code and wageorderprovisions; (2) unlawful business practices under the samesection;(3) failure to pay overtime compensation in violation of section 1194 and other provisions; (4) failure to provide accurate wage statements in violation of section 226; and (5) failure to fully compensate for business expensesin violation of section 2802. The trial court did not distinguish amongthese claims in granting the motion for class certification. Notwithstanding the legal conclusion alleged in their pleading, it is by no means clear at this point in thelitigation whetherall of Lee and Chevez’s claims under section 2802 (and the related claims for unfair or unlawful business practices), if proved, would be violations of Wage Order No. 9. To be sure, the wage order contains several provisions that arguably relate to the section 2802 claim: Employers may not deduct from the employee’s wagesor require reimbursementfor “any cash shortage, breakage, or loss of equipment” (Cal. Code Regs., tit. 8, § 11090, subd. (8)); the employer must provide and maintain uniforms worn by the employee as a condition of employment(id., § 11090, subd. 9(A)); and necessary tools and equipmentshall be provided and maintained by the employer (id., § 11090, subd. 9(B)). To the extent the reimbursement sought by Lee and Chevez in their section 2802 claim are confined to these items, the IWCdefinition of employee must be applied pursuant to Martinez, as discussed in the preceding section of our opinion. Claims for reimbursementfor the rental or purchase of personal vehicles used in performing delivery services, even if viable under section 2802, appear to be outside the ambit of Wage Order No. 9. (See Estrada v. FedEx Ground Package System, Inc., supra, 154 Cal.App.4th at pp. 21-25.) Ifso, the determination whethera classis properly 17 certified to pursue those claims must be made under the commonlaw definition of employee as discussed in Ayala and Borello. That evaluation is most appropriately made by the superior court in thefirst instance. DISPOSITION Thepetition is granted in part. Let a peremptory writ of mandateissue directing respondentsuperior court to reevaluate in light ofAyala, supra, 59 Cal.4th 522 and Duran, supra, 59 Cal.4th 1, if relevant, whetherclass certification remains appropriate for any claimsfalling outside Wage Order No. 9. In all other respects the petitionis denied. The parties are to bear their own costs in this proceeding. PERLUSS,P.J. Weconcur: WOODS,J. ZELON,J. 18 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES Iam employed in the County of San Francisco, State of California. I am over the age of 18 and not a party to the within action; my business address is 650 California Street, 20" Floor, San Francisco, California 94108. On November 24, 2014, I served the foregoing document as described below onthe interested parties in this action as follows: PETITION FOR REVIEW Clerk Court of Appeal Case No. Court of Appeal B249546 Second Appellate District Division Seven Ronald Reagan State Building 300 S. Spring Street 2nd Floor, North Tower Los Angeles, CA 90013 Clerk Los Angeles County Superior Court 111 North Hill Street Los Angeles, CA 90012 Attorney General Appellate Coordinator Office of the Attorney General Consumer Law Section 300 S. Spring Street Los Angeles, CA 90013-1230 District Attorney's Office County of Los Angeles 210 West Temple Street, #18000 Los Angeles, CA 90012-3210 Respondent A. Mark Pope, Esq. (State Bar No. 77798) Pope, Berger & Williams, LLP 3555 Fifth Avenue, Suite 300 San Diego, CA 92103 Kevin F. Ruf, Esq. (State Bar No. 136901) Glancy, Binkow & Goldberg, LLP 1925 Century Park East, #2100 Los Angeles, CA 90067 Jon R. Williams, Esq. (State Bar No. 162818) Williams Iagmin LLP 666 State Street San Diego CA 92101 Ellen M. Bronchetti, Esq. (State Bar No. 226975) Sheppard Mullin Four Embarcadero Center, 17th Floor San Francisco, CA 94111 Paul S. Cowie, Esq. (State Bar No. 250131) Sheppard Mullin 379 Lytton Avenue Palo Alto, CA 94301-1479 Attorneysfor Charles Lee: Plaintiffs and Real Party in Interest Pedro Chevez: Plaintiffs and Real Party in Interest Attorneysfor Charles Lee: Plaintiffs and Real Party in Interest Pedro Chevez: Plaintiffs and Real Party in Interest Attorneysfor Charles Lee: Plaintiffs and Real Party in Interest Pedro Chevez: Plaintiffs and Real Party in Interest Co-Counselfor Dynamex Operations West, Inc.: Defendant and Petitioner Co-Counselfor Dynamex Operations West, Inc.: Defendant and Petitioner xX BY MAIL: Following ordinary business practices at the Los Angeles, California office of Littler Mendelson, PC, I placed the sealed envelope for collection and mailing with the United States Postal Service I am readily familiar with the firm’s practice for Under that on that same day. collection and processing of correspondence for mailing. practice, such correspondence would be deposited with the United States Postal Service on that same day, with postage thereon fully prepaid at Los Angeles, California, in the ordinary course of business. x (FEDERAL)! declare that I am employed in the office of a memberofthe bar of this Court at whose direction the service was made. Executed on November24, 2014, at Los Angeles, California. Linda K. Camanio Firmwide:130288709.1 052385.1036