In a wage-and-hour class action filed by food and beverage vendors working in California entertainment arenas, the California Court of Appeal has ruled that a state Labor Code provision making it unlawful for any employer to “engage” in the willful misclassification of an individual as an independent contractor applies not only to the employer actually making the misclassification, but also to any employer who is aware that the co-employer has willfully misclassified their joint employees and fails to remedy the misclassification. Noe v. Superior Court (Levy Premium Foodservice Ltd. P’ship), No. B259570 (Cal. Ct. App. June 1, 2015). However, the Court also held that an employer could not be held jointly liable under Labor Code Section 226.8 based solely on the acts of a co-employer and that the law does not provide a private right of action for enforcement.
Anschutz Entertainment Group contracted with Levy Premium Foods to manage the food and beverage services at several California entertainment venues. Levy contracted with Canvas Corporation to provide laborers who sold food and beverages at AEG venues.
In 2013, several food and beverage workers filed a wage-and-hour class action against AEG, Levy, and Canvas for failing to pay minimum wage and willfully misclassifying them as independent contractors in violation of Section 226.8 of the California Labor Code. AEG and Levy filed motions for summary judgment, arguing they could not be held liable under Section 226.8 because Canvas made the classification decisions. Although the trial court denied the motions on other grounds, it agreed that the workers could not pursue their Section 226.8 claim against AEG and Levy as they did not make the classification decisions. The workers then filed a petition for writ of mandate, appealing the decision.
Section 226.8(a)(1) of the California Labor Code provides that it is “unlawful for any person or employer to engage in . . . [the] willful misclassification of an individual as an independent contractor.”
“Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”
Section 226.8 imposes civil penalties of up to $25,000 for each individual who has been willfully misclassified as an independent contractor.
The California Labor Commissioner is authorized to enforce the statute.
The workers argued that Section 226.8 applied not only to the employer who made the actual classification decision, but also to joint employers who knowingly acquiesced in the co-employer’s decision to misclassify their joint employees. The appellate court agreed.
Examining the statute’s language, the Court noted the California Legislature included “engage” in Section 226.8, which has a broad meaning, including “to involve oneself,” “to take part in,” or “to participate.” It said that, had the Legislature intended only to penalize employers who made the misclassification decision, it could have made it unlawful for an employer to willfully misclassify an individual as an independent contractor. However, by using words with a broader connotation, the Legislature, the Court presumed, “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.” Thus, the Court concluded that 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 and can be held liable under Section 226.8.
The workers argued that employers could be held vicariously liable based on their status as joint employers with the employer who made the classification decision. The Court rejected this as unsupported by the statute’s language. It noted that the statute imposes a civil penalty only when an employer has “engaged in” the act of “voluntarily and knowingly” misclassifying an individual as an independent contractor. Thus, merely employing misclassified individuals, without more, the Court said, is insufficient to impose liability under Section 226.8.
In addition, as Section 226.8 contained no language suggesting that a joint employer could be held vicariously liable for a co-employer’s misclassification, and “[i]n the absence of any such language,” the Court would not “presume that the Legislature intended joint and several liability to apply.”
Private Right of Action
The employers argued that no private right of action existed under Section 226.8. The Court agreed, finding no language to support such an action. Rather, it said, the statute imposes civil penalties that the Labor Commissioner may enforce through a civil action. This language, together with the Legislature’s repeated use of the term “civil penalty,” the Court held, precluded a direct private right of action, although Section 226.8 may be enforced through an action under the Private Attorneys General Act.
This case reminds California employers of the importance of periodically reviewing and auditing relationship with their staffing companies to ensure that employees are properly classified and paid. California employers should not presume their contractors, with whom they may have a joint-employer relationship, are paying their workers’ properly.