California Court of Appeal Rules Alleged Contractor Misclassification Not Enough to Justify Class Action

On Friday, March 12, 2021, the California Court of Appeal issued a ruling in Wilson v. The La Jolla Group that addresses the appropriate scope of class treatment for employee misclassification under Dynamex Operations West, Inc. v. Superior Court. Dynamex—and its later enactment into statute in the form of AB 5—established the ABC test for determining independent contractor status.

Under the ABC test, a worker is deemed an employee unless the business can satisfy the following requirements:

1. The worker is free from the control and direction of the hiring entity, both under the contract for the performance of work and in fact
2. The worker performs work that is outside of the usual course of the hiring entity's business
3. The worker is engaged in an independently established trade, occupation or business that is of the same nature as the work performed for the hiring entity

In Wilson, plaintiffs brought a putative wage and hour class action against defendant, The La Jolla Group (LJG). Plaintiffs worked for LJG as signature gatherers on behalf of political campaigns and political action committees. LJG classified them as independent contractors, but plaintiffs alleged that they should be classified as employees under the ABC test. As employees, they asserted they were entitled to minimum wage, overtime pay, meal and rest breaks, expense reimbursement, timely final wage payment, and itemized wage statements. Plaintiffs moved for class certification, and the trial court denied certification; plaintiffs appealed.

The Court of Appeal mostly upheld the ruling of the trial court, holding that the court did not commit error in determining that class treatment was inappropriate as to minimum wage, overtime pay, meal and rest breaks, expense reimbursement, and timely final wage payment. As to the receipt of itemized wage statements, however, the Court of Appeal reversed, holding that class treatment of this issue was appropriate.

First, the Court of Appeal noted that "[t]he party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives." The Court went on to say that the "community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class."

As the Court explained, "[t]he primary issues in this appeal are the predominance of common questions of fact or law and the superiority of the class action procedure."

Importantly, the Court noted that "'what really matters to class certification' is 'not similarity at some unspecified level of generality but, rather, dissimilarity that has the capacity to undercut the prospects for joint resolution of class members' claims through a unified proceeding." Thus, "[d]efenses that raise individual questions about the calculation of damages generally do not defeat certification. However, the Court went on to explain, "a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability. This distinction is important. …Only in an extraordinary situation would a class action be justified where, subsequent to the class judgment, the members would be required to individually prove not only damages but also liability" (emphasis added).

Further, "[a] certification order generally will not be disturbed unless (1) it is unsupported by substantial evidence, (2) it rests on improper criteria, or (3) it rests on erroneous legal assumptions."

Under part B of the Dynamex ABC test, in order to properly be treated as independent contractors, plaintiffs must perform work that is outside the usual course of principal's business. Plaintiffs argued that class certification was proper because, based on part B of the ABC test, the question of whether the workers were employees could present a common question that could support class certification.

Plaintiffs argued that the underlying question of misclassification is a question common to all class members, thus making class treatment appropriate. However, the Court explained that the existence of a common question of misclassification is only part of the equation, and that Plaintiffs must show that the issues which may be jointly tried are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants. The Court held that the experiences of each signature gatherer were so varied that the benefits of a class action would be undermined by numerous individual issues, such as hours worked, making class treatment inappropriate for most of Plaintiffs' claims.

Here, the Court reasoned,

[T]he record shows the work habits and practices of the signature gatherers vary widely. LJG does not tell signature gatherers where or how long to work. Some signature gatherers work long hours; others do not. Some work alone; others with partners. Many work other jobs. Almost all appear to work for other signature brokers. The signature gatherers can collect signatures for multiple brokers at the same time. And, because the signature gatherers can turn their collected signatures in to any broker handling that petition drive, it may be unknown during the work day which broker the signature gatherer is "working for" in any meaningful sense. As the trial court noted, each signature gatherer's "story" is different, and the court could reasonably reject class certification on that basis. For reasons we explain, the trial court could reasonably find that individual issues of liability predominate for the non-wage statement claims, notwithstanding the common question of misclassification.

The exception, the Court explained, was in the provision of itemized wage statements. LJG had a uniform policy of not providing signature gatherers with itemized wage statements, and "[a]n employee is 'deemed to suffer injury' if an employer fails to provide a wage statement or if the wage statement fails to include certain information. An employee can recover statutory penalties or actual damages for each such failure. Therefore, the court reasoned that "[b]ecause LJG's liability on plaintiffs' wage statement claim depends on misclassification, which under plaintiffs' theory of liability is a common question, the trial court abused its discretion by determining that common questions did not predominate on this claim" (emphasis added). In short, only where misclassification automatically established liability was class treatment appropriate.

Wilson demonstrates that mere existence of an overarching common question—such as employee misclassification—may not be enough to secure class certification. The key issue is whether individual showings are nonetheless necessary to establish liability. Where liability depends on wildly different sets of facts, class certification may be denied.