Employment class action litigation is often won or lost with a class certification ruling. If the employer is successful in opposing class certification, then these cases often go away with little or no fanfare and limited liability. If, however, an employer is unsuccessful, it may be exposed to substantial liability. After the California Supreme Court’s ruling last month in Ayala v. Antelope Valley Newspapers, workers alleging employment misclassification claims will find it easier to obtain class certification thereby transforming their relatively small individual claims into potentially multi-million dollar class action disputes.
The plaintiffs in Ayala were newspaper carriers employed by defendant newspaper publisher. In their action, the four plaintiffs claimed that defendant classified them as independent contractors when, in reality, they were employees entitled to various wage and hour protections. They sought to certify a class consisting of other carriers employed by defendant. The trial court denied plaintiffs’ motion for class certification, concluding that common issues did not predominate because determining the carriers’ employee status would require a detailed review of how defendant controlled the work of each respective carrier. Plaintiffs appealed the trial court’s denial to the Court of Appeal which agreed with plaintiffs that the issue was a common one capable of answer on a class wide basis. The California Supreme Court granted review and affirmed the ruling by the Court of Appeal.
Under California law, the critical question in deciding whether class certification is proper is whether there exists a “well-defined community of interest.” In answering this question, California courts look at whether or not common questions of law or fact predominate. According to the Supreme Court in Ayala, the trial court used the wrong standard for determining employee status. Contrary to the trial court’s analysis, the test for employee status was not how much control the employer exercises over its workers, but how much control the employer retains the right to exercise. As the trial court focused its analysis on how much control the defendant exercised over each carrier, rather than on the amount of control defendant retained the right to exercise, the Court agreed with the Court of Appeal’s decision to send the case back to the trial court with instructions to redo the analysis using the proper standard.
While the Court did not explicitly state that the trial court should have granted plaintiffs’ motion, the Court’s analysis does suggest that was exactly the result it expects from the trial court. When discussing the proper standard, the Court noted that the trial court gave virtually no weight to the fact that defendant’s relationship with its carriers was governed by two form contracts. Specifically, the Court emphasized the importance of a form contract to the class certification analysis and confirmed that the form contracts in this instance addressed, for all carriers, defendant’s control over the delivery process and defendant’s right to terminate the carriers’ contract without cause on 30 days’ notice. This discussion suggests that the Court believed plaintiffs had made a sufficient showing that class certification was proper in this case.
Ayala makes it clear that employers in California must exercise special care in how they classify their workers. In addition, and given the importance the Court placed on the written employment agreements, it is also a reminder that employers cannot ignore the importance of careful drafting of these agreements in order to protect themselves from future litigation.