Why it matters

Liability under the California Labor Code extends to joint employers that are aware of a willful misclassification of an employee as an independent contractor, an appellate panel in the state has ruled, although the court added that no private right of action exists under the provision at issue. Anschutz Entertainment Group contracted with Levy Premium Foods to handle food and beverage services at venues such as the Staples Center and Citizens Arena. Levy also contracted with Canvas Corporation to provide workers to sell the food and drinks. A group of the workers filed suit against all three entities alleging multiple violations of the state Labor Code, requesting recovery under Section 226.8 for knowing misclassification of an employee as an independent contractor.

Anschutz and Levy filed motions for summary judgment, arguing that they could not be held liable because Canvas classified the workers. A trial court agreed. The appellate panel reached the same outcome but via a different analysis. Relying on the word “engage” in the statute, the court said the state’s legislature intended to hold not only the employer that classified the worker liable but also “intended to penalize a broader class of employers that includes those who, through their acts or omissions, have knowingly participated or involved themselves in the willful misclassification decision.” However, joint and several liability does not apply, the court said, and no private right of action exists under Section 226.8, leaving the plaintiffs unable to assert their claim. Employers in the state should be careful when contracting with third parties to ensure that the Labor Code is followed and avoid assuming that staffing companies or other entities are properly paying all workers.

Detailed discussion

Anschutz Entertainment Group (AEG) and related entities own several Southern California entertainment venues, including the Staples Center. To provide food and beverage services at each venue, AEG contracted with Levy Premium Foodservice. Levy in turn contracted with Canvas Corporation to provide vendors who sold the food and beverages to attendees at events.

In 2013, a group of former vendors hired by Canvas filed a wage and hour lawsuit against all three entities. The plaintiffs cited multiple violations of the California Labor Code as well as the Private Attorneys General Act.

The putative class requested recovery under Section 226.8, which provides civil penalties for employers who “engage in” the act of “voluntarily and knowingly misclassifying [an] individual as an independent contractor.”

AEG and Levy responded with a motion for summary judgment, arguing that they were not a “joint employer” and could not be held liable for any of the Labor Code violations found in the complaint because the statute applies only to the employer who actually made the decision as to how to classify the workers. The defendants told the court they had “limited oversight” and that the evidence showed Canvas was solely responsible for hiring and paying the plaintiffs, setting their schedules, and providing compensation, as well as the classification of the workers as independent contractors.

A trial court agreed. The plaintiffs appealed, asserting that triable issues of fact existed as to whether the defendants were joint employers of the vendors provided by Canvas. AEG and Levy exerted substantial control over the workers, the plaintiffs said, with contract terms dictating what they sold, the price it was sold at, and the appearance of the vendors. The statute imposed a duty on the defendants to ensure all of their employees were properly classified, the plaintiffs added.

Although the court agreed with the plaintiffs that liability under the statute extends to joint employers, it affirmed the trial court after finding that no private right of action exists under Section 226.8.

“We conclude that, contrary to the trial court’s interpretation, section 226.8 is not limited to employers who make the misclassification decision, but also extends to any employer who is aware that a co-employer has willfully misclassified their joint employees and fails to remedy the misclassification,” the panel wrote. “However, we further conclude that section 226.8 cannot be enforced through a direct private action.”

Section 226.8 states: “(a) It is unlawful for any person or employer to engage in any of the following activities: (1) Willful misclassification of an individual as an independent contractor,” with “willful misclassification” defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

“The statute therefore makes it unlawful for an employer to ‘engage in’ the act of ‘voluntarily and knowingly misclassifying [an] individual as an independent contractor,’” the court said. Finding that the term “engage” has a broad meaning (to “involve oneself; to take part in,” per Black’s Law Dictionary), the court said, “an individual or entity can ‘engage’ in an act without actually having ‘committed’ that act.”

“If the Legislature had only intended to penalize employers who made the misclassification decision it could have simply made it unlawful for an employer to willfully misclassify an individual as an independent contractor,” the panel wrote.

“Alternatively, it could have made it unlawful to commit the act of willful misclassification. By choosing to use words with a broader construction—prohibiting employers from ‘engaging in’ the act of willful misclassification—we presume the Legislature intended to penalize a broader class of employers that includes those who, through their acts or omissions, have knowingly participated or involved themselves in the willful misclassification decision. As applicable here, a joint employer who knowingly acquiesces in a co-joint employer’s decision to willfully misclassify their joint employees has necessarily ‘involved’ itself in that misclassification decision.”

This conclusion effectuates the law’s purpose and is consistent with the objective of the statutes, which were meant to act as a broad deterrent against the practice of employee misclassification, the court said.

“Interpreting section 226.8 to exclude employers who know their own employees have been misclassified by a joint employer, but choose not to address the situation, would conflict with the Legislature’s broad objectives,” the court added.

However, the panel placed some limitations on its ruling. An employer may not be held liable under Section 226.8 based solely on the acts of a co-employer, the court explained, as the statute requires that an employer has “engaged in” the act of misclassification.

“Merely employing workers who have been willfully misclassified by a co-employer is, standing alone, insufficient,” the court wrote. “Simply put, we fail to see how an employer could ‘engage in’ the act of voluntarily and knowingly misclassifying a joint employee without any knowledge that the employee has been misclassified.”

Other sections of the Labor Code demonstrate that when the Legislature intends to impose joint and several liability, it knows how to do it, the court said.

Applying these principles to the facts of the case, “if plaintiffs prove AEG and Levy were their joint employers, those defendants may be held liable under [the Labor Code] for any unpaid minimum wage and overtime compensation resulting from plaintiffs’ misclassification,” the panel said. “To obtain civil penalties under section 226.8, however, plaintiffs must demonstrate not only that AEG and Levy were joint employers, but also that, as set forth in this opinion, they each engaged in the act of voluntarily and knowingly misclassifying the plaintiffs. The mere fact that Canvas engaged in such conduct is insufficient.”

Further, Section 226.8 does not provide a private right of action, the court held. The statute contains no language indicating the Legislature intended to create such a right or collect the penalties set forth in the statute. Instead, the only specific language regarding enforcement of Section 226.8 appears in subdivision (g), which authorizes the Labor Commissioner to enforce the statute, either by issuing a citation to assess penalties or in a civil suit.

Because Section 226.8 does not provide a private right of action, the panel affirmed summary judgment on the plaintiff’s claim under the provision seeking to collect a civil penalty on behalf of each misclassified employee. In a footnote, the court added that nothing in its analysis precluded the plaintiffs from pursuing enforcement of Section 226.8 through their PAGA claim.

To read the opinion in Noe v. Superior Court, click here.