Ninth Circuit Addresses Misclassification of Employees as Independent Contractors
Many businesses utilize independent contractors as part of their daily operations. Contractors are often favored by businesses over full time employees, because they allow for flexibility in retention and scheduling, are not entitled to government-mandated benefits such as workers' compensation, and are typically not offered costly benefits such as health insurance. A problem often arises, however, when the business seeks to take advantage of these positive aspects of the relationship, yet also wants to control how the contractor performs his duties.
Recently, the federal Ninth Circuit Court of Appeals addressed alleged misclassification of employees as independent contractors. In Narayan v. EGL Inc., No. 07-16487 (July 13, 2010), the plaintiffs were California-based drivers for a freight delivery service, Eagle Freight Systems, Inc. (EGL). They had signed an agreement that indicated they were independent contractors. The agreement designated Texas law as the law to be applied in any dispute over the agreement's terms. The drivers subsequently sued EGL, alleging that they were in fact employees, and sought damages under California law for overtime, expenses, and meal break compensation, among other things. Ruling that the matter was governed by Texas law, the district court granted EGL's motion for summary judgment. On appeal, the Ninth Circuit reversed.
The Ninth Circuit first determined that California law applied, because the dispute involved benefits provided under the California Labor Code, not the agreement. The Court then reviewed the relationship between the drivers and EGL. In California, a worker can establish a prima facie case of employment by demonstrating that the worker provided services for the employer. The burden then shifts to the employer to prove that the worker was in fact an independent contractor by overcoming the multi-factor test adopted by the California Supreme Court in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal.3d 341.
