Whitlach v. Premier Valley, Inc. ( 2022 )

Filed 11/18/22; Certified for Publication 12/19/22 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
JAMES R. WHITLACH,
F082322
Plaintiff and Appellant,
(Super. Ct. No. CV-19-005627)
v.
PREMIER VALLEY, INC. et al., OPINION
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Stanislaus County. John D.
Freeland, Judge.
Clapp & Lauinger, James F. Clapp and Marita Lauinger; Wynne Law Firm and
Edward J. Wynne; Altshuler Berzon and Michael Rubin, for Plaintiff and Appellant.
Arena Hoffman, Ronald D. Arena, Conor D. Mack and Michael Moore, for
Defendant and Respondent Premier Valley, Inc.
O’Melveny & Myers, Apalla U. Chopra, Adam J. Karr, Andrew Lichtenstein,
Jason Zarrow and Anton Metlitsky, for Defendant and Respondent Century 21 Real
Estate LLC.
June Babiracki Barlow, Neil Kalin and Jenny Li for California Association of
Realtors as Amicus Curiae on behalf of Defendant and Respondent.
-ooOoo-
Plaintiff James Whitlach pursued a claim under the Labor Code Private Attorney
General Act of 2004 (Lab. Code, § 2698 et seq.) against Defendants Premier Valley, Inc.
(doing business as Century 21 MM) and Century 21 Real Estate LLC, to enforce civil
penalties for violations of the Labor Code. The trial court sustained defendants’ demurrer
to the operative complaint without leave to amend. Whitlach appealed.
This appeal involves issues of statutory interpretation with regard to the following
question: What is the applicable test or governing standard for determining whether a
real estate salesperson is an “employee” or an “independent contractor” for purposes of
the Labor Code’s wage and hour provisions. Resolution of this question turns on
interpreting recently enacted Labor Code section 2778, subdivision (c)(1), and other
provisions incorporated therein.
We conclude the applicable test for the purpose at hand is the test set forth in
Unemployment Insurance Code sections 650 and 13004.1, as incorporated in Business
and Professions Code section 10032, subdivision (b), which is itself incorporated in
Labor Code section 2778, subdivision (c)(1).
The trial court reached the same conclusion and applied the correct test in ruling
on defendants’ demurrer. We affirm the judgment.
PROCEDURAL BACKGROUND
I. Complaint
Plaintiff James Whitlach is a former real estate agent who was affiliated with
defendant Premier Valley, Inc., doing business as Century 21 MM (Premier Valley), a
real estate brokerage firm located in Oakdale. Premier Valley is a franchisee of co-
defendant Century 21 Real Estate LLC (Century 21), a Delaware Corporation with its
principal place of business in Parsippany, New Jersey.
On December 20, 2018, Whitlach filed a class action complaint in this matter,
alleging multiple violations of the Labor Code, among other claims. The complaint
2.
alleged he was bringing the class action “on behalf of similarly situated [real estate
agents] who were misclassified as independent contractors [when they should have been
considered employees,] and as a result were not properly paid all wages due and owing,
[were] subject[ed] [to] unlawful deductions, and were not reimbursed for reasonable and
necessary business expenses.”
On February 15, 2019, Whitlach filed a first amended complaint (FAC). The FAC
added a representative claim under the Labor Code Private Attorney General Act of 2004
(PAGA), which allows an “ ‘aggrieved employee’ ” to recover civil penalties for Labor
Code violations committed by an employer. (Lab. Code, §§ 2698, 2699, subd. (a).) The
FAC alleged Whitlach was an “aggrieved employee” for purposes of his PAGA claim.
The FAC further alleged that Whitlach’s PAGA claim was brought “on behalf of himself
and other current and former [real estate agents]” affiliated with Premier Valley, to seek
civil penalties for Labor Code violations committed by Premier Valley and Century 21.
On June 5, 2019, Whitlach’s class claims were dismissed upon the trial court’s adoption
of a stipulated order to this effect, leaving at issue only the PAGA claim.
On November 15, 2019, Premier Valley and Century 21 demurred to the FAC on
the ground that Whitlach was precluded from asserting a PAGA claim (or any derivative
Labor Code claim) because he was an independent contractor, not an employee. The trial
court heard the demurrer on June 12, 2020. The court concluded the applicable test for
determining Whitlach’s employee or independent contractor status for purposes of his
PAGA cause of action and derivative Labor Code claims was the Unemployment
Insurance Code section 650 test incorporated in Business and Professions Code section
10032, subdivision (b) (Bus. & Prof. Code, § 10032(b)), itself incorporated in Labor
Code section 2778, subdivision (c)(1) (Lab. Code, § 2778(c)(1)) (formerly Lab. Code,
§ 2750.3, subd. (d)(1).) Applying the Unemployment Insurance Code section 650 test,
3.
the trial court ruled that Whitlach was an independent contractor as a matter of law and
dismissed the FAC with leave to amend.
On June 30, 2020, Whitlach filed a second amended complaint (SAC), which is
the operative complaint in this case. The SAC again asserted a single PAGA cause of
action, premised on alleged misclassification of real estate agents as independent
contractors rather than employees, and attendant Labor Code violations, by Premier
Valley. In addition, the SAC contained multiple new allegations directed to the trial
court’s rationale for dismissing the FAC (i.e., that Whitlach was an independent
contractor as a matter of law).
The test applied by the trial court in determining that Whitlach was an independent
contractor as a matter of law turned, in part, on the existence of a written contract or
independent contractor agreement between Whitlach and Premier Valley. In the SAC,
Whitlach alleged the independent contractor agreement he had signed was
unconscionable and, therefore, unenforceable. Whitlach alleged, alternatively, that
should he be determined to be an independent contractor and not an employee under
Business and Professions Code section 10032(b), as incorporated in Labor Code section
2778(c)(1) (the statutes the trial court had relied on in dismissing the FAC), then Labor
Code section 2778(c)(1) violated equal protection and was unconstitutional under the
California Constitution. Finally, Whitlach alleged he was an employee for purposes of
PAGA and his derivative Labor Code claims because he had entered into a separate
contract or management employment agreement with Premier Valley, in his capacity as a
sales manager for the firm.
On August 6, 2020, defendants Premier Valley and Century 21 demurred to the
SAC. Premier Valley and Century 21 again argued that Whitlach was an independent
contractor as a matter of law; they further argued that Labor Code section 2778(c)(1) was
not unconstitutional, the independent contractor agreement between Whitlach and
4.
Premier Valley was not unconscionable, and the separate contract Whitlach had with
Premier Valley for his work as a sales manager was irrelevant for purposes of his
representative claims. The trial court heard the demurrer on November 10, 2020; the
court sustained defendants’ demurrer and dismissed the SAC without leave to amend.
Whitlach appeals the trial court’s ruling sustaining the demurrer to the SAC and
the subsequent judgment of dismissal. He contends the trial court applied the wrong test
for determining whether he was an independent contractor or employee of Premier Valley
for purposes of his PAGA cause of action and derivative Labor Code claims. In the
alternative, he argues Labor Code section 2778(c)(1) is unconstitutional, his independent
contractor agreement with Premier Valley is unconscionable and unenforceable, and
there is a question of fact as to whether the management employment contract for his
sales manager position constitutes the operative agreement for purposes of evaluating his
status as an employee or independent contractor with regard to his representative claims.
We affirm.
DISCUSSION
I. Standard of Review
An order sustaining a demurrer is reviewed de novo to determine whether the
complaint states a cause of action. (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494,
1501; People for Ethical Operation of Prosecutors etc. v. Spitzer (2020) 53 Cal.App.5th
391, 398 [we review “a sustained demurrer” and any embedded legal questions de
novo].)
II. Under Labor Code Section 2778(c)(1), and Business and Professions Code
Section 10032(b) as Incorporated Therein, Whitlach is an Independent
Contractor as a Matter of Law
The parties agree that in order for Whitlach to proceed on his PAGA claim, he was
required to be an employee of Premier Valley, because PAGA, as well as the Labor Code
statutes Whitlach seeks to enforce through PAGA, apply only to employees, and not to
5.
independent contractors. (See Lab. Code, § 2699, subd. (a) [PAGA action must be
brought by “an aggrieved employee on behalf of himself or herself and other current or
former employees”]; Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th
903, 913 (Dynamex) [California’s labor laws protect only employees, not independent
contractors].) The principal question on appeal is therefore whether Whitlach was an
employee or independent contractor for purposes of his PAGA cause of action and/or
derivative Labor Code claims.
The parties further agree that the starting point for this analysis is Labor Code
section 2778(c)(1), formerly Labor Code section 2750.3, subdivision (d)(1), which was
enacted in 2019 by Assembly Bill No. 5 (2019-2020 Reg. Sess.) (Stats. 2019, ch. 296,
§ 2) (AB 5), and became effective on January 1, 2020, prior to the trial court’s dismissal
of both Whitlach’s FAC and operative SAC.1 Before we turn to the implications of
Labor Code section 2778(c)(1), we will address the background against which this
provision was enacted in some detail.
A. Prior Tests for Determining Employee or Independent Contractor Status
Prior to the enactment of Labor Code section 2778(c)(1), the California Supreme
Court decided, in 2018, the watershed Dynamex case. (Dynamex, supra, 4 Cal.5th 903.)
Dynamex characterized the issue before that court as follows: “The issue in this case
relates to the resolution of the employee or independent contractor question in one
specific context. Here we must decide what standard applies, under California law, in
determining whether workers should be classified as employees or as independent
contractors for purposes of California wage orders, which impose obligations relating to
1 As indicated, Labor Code section 2778(c)(1) was originally numbered as Labor
Code section 2750.3, subdivision (d)(1). Effective September 4, 2020, Labor Code
section 2750.3 was repealed and renumbered as Labor Code sections 2775-2787. (Stats.
2020, ch. 38, § 1.) We refer to the current code sections as the parties have not noted any
substantive change to the code sections relevant to this appeal.
6.
the minimum wages, maximum hours, and a limited number of very basic working
conditions (such as minimally required meal and rest breaks) of California employees.”2
(Dynamex, supra, at pp. 913-914.)
Dynamex provided “a historical review of the treatment of the employee or
independent contractor distinction under California law.” (Dynamex, supra, 4 Cal.5th at
p. 927.) Dynamex noted: “ ‘Few problems in the law have given greater variety of
application and conflict in results than the cases arising in the borderland between what is
clearly an employer-employee relationship and what is clearly one of independent
entrepreneurial dealing. This is true within the limited field of determining vicarious
liability in tort. It becomes more so when the field is expanded to include all of the
possible applications of the distinction.’ ” (Ibid.)
Dynamex explained: “As the above quotation suggests, at common law the
problem of determining whether a worker should be classified as an employee or an
independent contractor initially arose in the tort context—in deciding whether the hirer of
the worker should be held vicariously liable for an injury that resulted from the worker’s
actions. In the vicarious liability context, the hirer’s right to supervise and control the
details of the worker’s actions was reasonably viewed as crucial, because ‘ “[t]he extent
to which the employer had a right to control [the details of the service] activities was …
highly relevant to the question whether the employer ought to be legally liable for
them….” ’ [Citation.] For this reason, the question whether the hirer controlled the
details of the worker’s activities became the primary common law standard for
determining whether a worker was considered to be an employee or an independent
contractor.” (Dynamex, supra, 4 Cal.5th at p. 927.)
2 The court explained that “[i]n California, wage orders are constitutionally
authorized, quasi-legislative regulations that have the force of law.” (Dynamex, supra, 4
Cal.5th at pp. 913-914.)
7.
“Prior to [the California Supreme Court’s] 1989 decision in [S. G.] Borello[ &
Sons, Inc. v. Department of Industrial Relations (1989)] 48 Cal.3d 341, California
decisions generally invoked this common law ‘control of details’ standard beyond the tort
context, even when deciding whether workers should be considered employees or
independent contractors for purposes of the variety of 20th century social welfare
legislation that had been enacted for the protection of employees. Thus, for example, in
Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946 …, in determining
whether a worker was an employee or independent contractor for purposes of California’s
unemployment insurance legislation, the court stated that ‘[t]he principal test of an
employment relationship is whether the person to whom service is rendered has the right
to control the manner and means of accomplishing the result desired.’ ” (Dynamex,
supra, 4 Cal.5th at pp. 927-928.)
“In addition to relying upon the control of details test, however, the pre-Borello
decisions listed a number of ‘secondary’ factors that could properly be considered in
determining whether a worker was an employee or an independent contractor. The
decisions declared that a hirer’s right to discharge a worker ‘ “at will, without cause” ’
constitutes ‘ “[s]trong evidence in support of an employment relationship.” ’ ”
(Dynamex, supra, 4 Cal.5th at p. 928.) “The decisions also pointed to the following
additional factors … ‘(a) whether or not the one performing services is engaged in a
distinct occupation or business; (b) the kind of occupation, with reference to whether, in
the locality, the work is usually done under the direction of the principal or by a specialist
without supervision; (c) the skill required in the particular occupation; (d) whether the
principal or the workman supplies the instrumentalities, tools, and the place of work for
the person doing the work; (e) the length of time for which the services are to be
performed; (f) the method of payment, whether by the time or by the job; (g) whether or
8.
not the work is a part of the regular business of the principal; and (h) whether or not the
parties believe they are creating the relationship of employer-employee.’ ” (Ibid.)
“In 1989, in Borello, supra, 48 Cal.3d 341, [our Supreme Court] addressed the
employee or independent contractor question in an opinion that has come to be viewed as
the seminal California decision on this subject.” (Dynamex, supra, 4 Cal.5th at p. 929.)
“The particular controversy in Borello, supra, 48 Cal.3d 341, concerned whether
farmworkers hired by a grower to harvest cucumbers under a written ‘sharefarmer’
agreement were independent contractors or employees for purposes of the California
workers’ compensation statutes.” (Dynamex, supra, at p. 929.) The Borello court
recognized that “ ‘[t]he distinction between independent contractors and employees arose
at common law to limit one’s vicarious liability for the misconduct of a person rendering
service to him’ [citation], and that it was in this context that ‘the “control of details” test
became the principal measure of the servant’s status for common law purposes’ (ibid.).
[Citation.] The court then took note of the prior California decisions discussed above,
which generally [also] utilized the common law control-of-details standard in
determining whether workers were employees or independent contractors for purposes of
social welfare legislation, but which [further] identified the numerous additional
‘secondary’ factors [see above] that may be relevant to that determination. [Citation.]
The [Borello] court observed that ‘the individual factors cannot be applied mechanically
as separate tests; they are intertwined and their weight depends often on particular
combinations.” ’ ” (Dynamex, supra, at pp. 929-930.)
Finally, Borello explained that “ ‘the concept of “employment” embodied in the
[Workers’ Compensation Act] is not inherently limited by common law principles.’ ”
(Dynamex, supra, 4 Cal.5th at p. 930.) Rather, the court observed that “ ‘[t]he common
law and statutory purposes of the distinction between “employees” and “independent
contractors” are substantially different,’ ” whereby “ ‘[t]he nature of the work, and the
9.
overall arrangement between the parties, must be examined to determine whether they
come within the “history and fundamental purposes” of the statute.’ ” (Ibid.) Borello
concluded that “ ‘[e]ach service arrangement must be evaluated on its facts, and the
dispositive circumstances may vary from case to case.’ ” (Id. at pp. 931, 934 [“although
we have sometimes characterized Borello as embodying the common law test or standard
for distinguishing employees and independent contractors [citation], it appears more
precise to describe Borello as calling for resolution of the employee or independent
contractor question by focusing on the intended scope and purposes of the particular
statutory provision or provisions at issue”].) In sum, “Borello calls for application of a
statutory purpose standard that considers the control of details and other potentially
relevant factors identified in prior California … cases in order to determine which
classification (employee or independent contractor) best effectuates the underlying
legislative intent and objective of the statutory scheme at issue.” (Id. at p. 934.)
After providing a historical overview of various tests for distinguishing between
employees and independent contractors, Dynamex turned to resolving the question of
what test or standard applies “in determining whether workers should be classified as
employees or as independent contractors for purposes of California wage orders.”
(Dynamex, supra, 4 Cal.5th at p. 913.) Dynamex adopted “the so-called ‘ABC’ test” for
this purpose. (Id. at p. 955.) “The ABC test presumptively considers all workers to be
employees, and permits workers to be classified as independent contractors only if the
hiring business demonstrates that the worker in question satisfies each of three
conditions: (a) that the worker is free from the control and direction of the hirer in
connection with the performance of the work, both under the contract for the performance
of the work and in fact; and (b) that the worker performs work that is outside the usual
course of the hiring entity’s business; and (c) that the worker is customarily engaged in
an independently established trade, occupation, or business of the same nature as that
10.
involved in the work performed.” (Id. at pp. 955-956, 957.) Under the ABC test, “[t]he
hiring entity’s failure to prove any one of these three prerequisites will be sufficient in
itself to establish that the worker is an included employee, rather than an excluded
independent contractor, for purposes of the wage order.” (Id. at p. 964.)
B. Recently Enacted Labor Code Section 2778(c)(1)
In 2019, the Legislature passed AB 5 (Stats. 2019, ch. 296, § 2), which enacted,
effective January 1, 2020, Labor Code section 2750.3, subsequently renumbered as Labor
Code sections 2775-2787, effective September 4, 2020 (Stats. 2020, ch. 38, § 1).
Assembly Bill No. 5 codified Dynamex’s ABC test as the controlling test for determining
a worker’s employment status for purposes of the Labor Code, the Unemployment
Insurance Code, and the wage orders of the Industrial Welfare Commission (IWC). (See
Lab. Code, § 2775, subd. (b)(1).)3
However, AB 5, further provided that multiple occupational classifications were
exempted from the sweep of Labor Code section 2775, subdivision (b)(1). For the
exempted occupational classifications, the ABC test—as set forth in Dynamex and
subsequently incorporated in Labor Code section 2775, subdivision (b)(1)—was not the
controlling test for resolving the employee or independent contractor question for
purposes of the Labor Code, Unemployment Insurance Code, and wage orders. “Real
3 Labor Code section 2775, subdivision (b)(1) provides: “For purposes of this code
and the Unemployment Insurance Code, and for the purposes of wage orders of the
Industrial Welfare Commission, a person providing labor or services for remuneration
shall be considered an employee rather than an independent contractor unless the hiring
entity demonstrates that all of the following conditions are satisfied: [¶] (A) The person
is free from the control and direction of the hiring entity in connection with the
performance of the work, both under the contract for the performance of the work and in
fact. [¶] (B) The person performs work that is outside the usual course of the hiring
entity’s business. [¶] (C) The person is customarily engaged in an independently
established trade, occupation, or business of the same nature as that involved in the work
performed.”
11.
estate licensee” was one of the occupational classifications that was specifically
exempted from the purview of Labor Code section 2775, subdivision (b)(1), and in turn
from the application of Dynamex and the ABC test for purposes of the Labor Code,
Unemployment Insurance Code, and wage orders. (See Lab. Code, § 2778, subd. (c) &
(c)(1) (formerly Lab. Code, § 2778, subd. (b) & (b)(1), see Stats. 2021, ch. 422, § 1,
correcting numbering error within Lab. Code, § 2778).)
Labor Code section 2778, subdivision (c) and (c)(1), which collectively remove
real estate licensees from the purview of Labor Code section 2775, subdivision (b)(1) and
application of Dynamex’s ABC test, provide as follows: “(c) Section 2775 and the
holding in Dynamex do not apply to the following, which are subject to the Business and
Professions Code: [¶] (1) A real estate licensee licensed by the State of California
pursuant to Division 4 (commencing with Section 10000) of the Business and Professions
Code, for whom the determination of employee or independent contractor status shall be
governed by subdivision (b) of Section 10032 of the Business and Professions Code. If
that section is not applicable, then this determination shall be governed as follows: [¶]
(A) For purposes of unemployment insurance by Section 650 of the Unemployment
Insurance Code. [¶] (B) For purposes of workers’ compensation by Section 3200 et seq.
[of the Labor Code]. [¶] (C) For all other purposes in the Labor Code by Borello. The
statutorily imposed duties of a responsible broker under Section 10015.1 of the Business
and Professions Code are not factors to be considered under the Borello test.” (Italics
added.)
C. Business and Professions Code Section 10032 (Enacted Post-Borello, in
1991)
Business and Professions Code section 10032 provides as follows:
“(a) All obligations created under [the Real Estate Law,] Section 10000,
and following, all regulations issued by the [Real Estate] commissioner
relating to real estate salespersons, and all other obligations of brokers and
12.
real estate salespersons to members of the public shall apply regardless of
whether the real estate salesperson and the broker to whom he or she is
licensed have characterized their relationship as one of ‘independent
contractor’ or of ‘employer and employee.’
“(b) A real estate broker and a real estate salesperson licensed under that
broker may contract between themselves as independent contractors or as
employer and employee, for purposes of their legal relationship with and
obligations to each other. Characterization of a relationship as either
‘employer and employee’ or ‘independent contractor’ for statutory
purposes, including, but not limited to, withholding taxes on wages and for
purposes of unemployment compensation, shall be governed by Section
650 and Sections 13000 to 13054, inclusive, of the Unemployment
Insurance Code. For purposes of workers compensation the
characterization of the relationship shall be governed by Section 3200, and
following, of the Labor Code.” (Italics added.)
Section 10032, subdivisions (a) and (b), were added to the Business and
Professions Code in 1991, by Senate Bill No. 630 (1991-1992 Reg. Sess.) (SB 630). (See
Stats. 1991, ch. 679, § 1.) Defendants Premier Valley and Century 21 contend the
Legislature added Business and Professions Code section 10032 in 1991, to, inter alia,
identify the proper test for determination of employee or independent contractor status for
real estate agents/salespersons, for purposes of the Labor Code, among other statutory
schemes. They contend the Legislature acted to do so after several cases from the Court
of Appeal, in resolving this question for a variety of purposes (including labor disputes),
either applied the common law/Borello test to find that real estate agents were employees
or determined that real estate agents were employees as a matter of law (in light of their
designation as such in the Real Estate Law). Premier Valley and Century 21 contend,
furthermore, that the passage of AB 5 and enactment of Labor Code section 2778(c)(1),
confirmed the continued vitality of Business and Professions Code section 10032(b) and
the Unemployment Insurance Code section 650 test incorporated therein, as the standard
for resolving the employee or independent contractor question for real estate salespersons
for purposes of the Labor Code, including its wage and hour provisions.
13.
Whitlach, on the other hand, argues that the Unemployment Insurance Code
section 650 test, as incorporated in Business and Professions Code section 10032(b), was
never the standard for resolving the employee or independent contractor status of real
estate salespersons for purposes of the Labor Code, including its wage and hour
provisions. More specifically, Whitlach argues that, for purposes of the Labor Code,
prior to passage of AB 5, this question was controlled by the Borello test, and the same is
true after the passage of AB 5 and enactment of Labor Code section 2778(c)(1).
As discussed in detail below, we conclude that defendants Premier Valley and
Century 21 have the better argument, in that the Unemployment Insurance Code section
650 test, as incorporated in Business and Professions Code section 10032(b), has long
provided, and continues to provide, the controlling test for resolving the employee or
independent contractor question for real estate salespersons, for purposes of the wage and
hour provisions of the Labor Code.
D. Test for Determining Employee or Independent Contractor Status Set
Forth in Unemployment Insurance Code Sections 650 and 13004.1 (Same
Test Appears in Both Sections), as Incorporated in Business and
Professions Code Section 10032(b)
As noted, Business and Professions Code section 10032(b) incorporates the test
for determining the employee or independent contractor status set forth in Unemployment
Insurance Code sections 650 and 13004.1, respectively. Unemployment Insurance Code
section 650 provides: [¶] “ ‘Employment’ does not include services performed as a real
estate … broker or as a real estate … salesperson, by an individual if all of the following
conditions are met: [¶] (a) The individual is licensed under the provisions of … Part 1
(commencing with Section 10000) of Division 4 of, the Business and Professions
Code.… [¶] (b) Substantially all of the remuneration (whether or not paid in cash) for the
services performed by that individual is directly related to sales or other output (including
the performance of services) rather than to the number of hours worked by that individual
14.
[i.e., the remuneration is in the form of a commission]. [¶] (c) The services performed by
the individual are performed pursuant to a written contract between that individual and
the person for whom the services are performed and the contract provides that the
individual will not be treated as an employee with respect to those services for state tax
purposes.” Section 13004.1 of the Unemployment Insurance Code perfectly mirrors
section 650 of that code.
Defendants Premier Valley and Century 21 contend that Business and Professions
Code section 10032(b) and the Unemployment Insurance Code sections 650/13004.1 test
incorporated therein, provide the applicable standard for determining employee or
independent contractor status for real estate salespersons for purposes of the Labor Code,
including its wage and hour provisions. Defendants further contend that all the
conditions of the three-factor test set forth in Unemployment Insurance Code sections
650 and 13004.1 “are indisputably satisfied here,” a contention that Whitlach does not
challenge (Whitlach rather argues the aforementioned statutes do not provide the
applicable test for resolving the employee or independent contractor question for
purposes of the Labor Code). As Premier Valley and Century 21 point out, the SAC and
its exhibits, along with documents judicially noticed by the trial court, establish that
Whitlach was a licensed real estate agent; he was paid by commission; and he entered
into a written contract regarding his services as a real estate agent that specified he was
an independent contractor for state tax purposes. In short, the three-factor test set forth in
Unemployment Insurance Code sections 650 and 13004.1 is satisfied here. Premier
Valley and Century 21 posit, “[t]hat is the end of the matter” as “[u]nder the statutes’
plain text, Whitlach was clearly and unambiguously an independent contractor.”
We will now analyze the primary question presented in this appeal, that is, what is
the proper test for resolving the employee or independent contractor question for real
estate salespersons for purposes of the wage and hour provisions of the Labor Code.
15.
E. Analysis
The unique relationship between real estate brokers and agents is both commonly
recognized and has long been reflected in California law. A web of statutes and
regulations require brokers to exercise significant control over agents and to direct work
performed by agents under their supervision. (See, e.g., Cal. Code Regs., tit. 10, § 2725;
2 Miller & Starr, Cal. Real Estate (4th ed. 2021) § 4:31.) Such a legal regime would
normally complicate determining real estate agents’ employment status because a
principal’s right to control his agent is usually the most important factor suggesting the
agent is an employee rather than an independent contractor. (See Borello, supra, 48
Cal.3d at p. 350 [right to control most important consideration].) Yet the Legislature has
signaled, at the same time, that real estate agents were free to structure independent
contractor arrangements, and that, in many contexts, traditional or common law-based
tests did not make sense for resolving the employee or independent contractor question
for real estate agents.
Thus, the Legislature enacted Unemployment Insurance Code section 650 in 1953,
and subsequently Unemployment Insurance Code section 13004.1 (these are nearly
identical to a provision in the federal tax code, 26 U.S.C. § 3508), both of which statutes
excluded real estate agents from the definitions of “employee” and “employment” for
purposes of that code when the individual agent was licensed by the state, was paid by
commission rather than in relation to the number of hours of worked, and performed the
relevant services pursuant to a written contract, with the latter specifying that the
individual would not be treated as an employee with respect to those services, for state
tax purposes.
There were no statutory tests to resolve the employee or independent contractor
question for real estate agents in other contexts. California courts were thus left to
evaluate whether real estate agents were employees or independent contractors by
16.
recourse to the general control-based test and/or the provisions of the Real Estate Law
(Bus. & Prof. Code, § 10000 et seq.), and to tackle the question under what
circumstances, if at all, real estate agents could enter into independent contractor
relationships with brokers. Some of the resulting disputes centered on the proper test for
ascertaining the liability of brokers for the tortious acts of real estate salespersons
(Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190 (Gipson)), others involved
disputes as to whether a real estate salesperson was entitled to minimum wages (Grubb &
Ellis Co. v. Spengler (1983) 143 Cal.App.3d 890 (Grubb & Ellis)), and whether a
salesperson was an employee under workers’ compensation law (Payne v. White House
Properties (1980) 112 Cal.App.3d 465 (Payne)).
Still another dispute involved an instance in which the “State Labor
Commissioner” had “interpreted the relationship [between brokers and real estate agents]
as that of an employer/employee for purposes of applying provisions of the Labor Code,”
specifically in mediating “commission disputes between [brokers and agents],” despite
the fact that the brokers and agents had entered into contracts establishing the agents as
independent contractors. (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading
analysis of SB 630, dated April 29, 1991.) (See Resnik v. Anderson & Miles (1980) 109
Cal.App.3d 569 (Resnik) [holding Labor Commissioner properly intervened on behalf of
real estate salesperson in matter of unpaid sales commissions, because a real estate
salesperson is an employee as a matter of law under Gipson and the Real Estate Law].)
The Gipson case, and its progeny, including Resnik, had significant implications
for the real estate industry. As noted, Gipson concerned the question of a broker’s
liability for the tortious acts of a salesperson. After reviewing various provisions of the
Real Estate Law that governed the relationship between brokers and salespersons, the
Gipson court concluded, “a salesman, insofar as his relationship with the broker who
employs him is concerned, cannot be classed as an independent contractor” because “the
17.
Legislature has, by virtue of statutory enactment, made such a salesman an agent [or
employee] of the broker as a matter of law.” (Gipson, supra, 215 Cal.App.2d at pp. 206-
207.) Gipson further held that any contract purporting to make the salesperson an
independent contractor is “invalid as being contrary to the provisions of the Real Estate
Law.” (Id. at p. 207.) Resnik extended Gipson’s holding to the arena of Labor Code
requirements, and reemphasized, with reference to the provisions of the Real Estate Law,
that “the Legislature has made” real estate salespersons “employee[s]” of brokers “as a
matter of law.” (Resnik, supra, 109 Cal.App.3d at p. 572.)
On the other hand, in Payne, in considering whether a real estate salesperson was
an employee under workers’ compensation law, the court concluded, based on the Real
Estate Law that, “[i]n most instances the real estate salesperson would be an employee
for purposes of worker’s compensation, but that determination remains a question of
fact.” (Payne, supra, 112 Cal.App.3d at p. 471.) Finally, Grubb & Ellis, considered
whether a real estate salesperson was entitled to minimum wages. Grubb & Ellis
described the different ways courts had determined the employee or independent
contractor status of real estate agents in various contexts. Grubb & Ellis concluded that,
in that case, the question of the proper test for determining the status of real estate agents
for purposes of application of state minimum wage laws was essentially moot because,
although the plaintiff claimed he was an employee under the traditional common law
“ ‘control’ ” test, he had offered “minimal evidence” in support of his claim. (Grubb &
Ellis, supra, 143 Cal.App.3d at p. 898.)
In 1991, the Legislature addressed the disputes around the employee or
independent contractor question for real estate agents, as well as the focus on the Real
Estate Law in the caselaw addressing this question, by passing SB 630, which enacted
Business and Professions Code section 10032. The legislative history of SB 630, as
included in the record on appeal, indicates that the bill’s sponsor, the California
18.
Association of Realtors, sought legislative action to require recognition, in certain legal
contexts (including the labor law arena), of the contractual arrangements between brokers
and their sales agents and to effectuate such contractual arrangements when applying
specific provisions of law. Thus, as reflected in, among other documents, an April 1991
report of the Senate Committee on Business and Professions issued shortly after the
introduction of SB 630 in that committee, the purpose of the proposed statute (i.e.,
Business and Professions Code section 10032) was “to recognize legitimate contractual
relationships of real estate licensees when applying specific provisions of law (i.e., Labor
Code, Revenue and Taxation Code and the Insurance Code) to the broker-salesperson
relationship,” while leaving in place “existing obligations of a real estate broker
regarding liability [and] workers compensation insurance.”
Ultimately, Business and Professions Code section 10032, subdivision (a)
preserved the status quo for obligations of brokers and agents regarding liability to the
public (e.g., under tort law and the Real Estate Law (Business & Professions Code,
§ 10000 et seq.)). Subdivision (b) of the statute supplied the rule with respect to “their
legal relationship with and obligations to each other,” as well as the test or governing
standard for determining the employee or independent contractor status of real estate
agents for certain “statutory purposes,” with the express exception of the workers’
compensation scheme (set forth in specific provisions of the Labor Code). The test
incorporated in Business and Professions Code section 10032(b) for determining, for
certain “statutory purposes,” the employee or independent contractor status of real estate
agents, is the test set forth in Unemployment Insurance Code sections 650/13004.1. The
present case requires us to address the scope of subdivision (b) of Business and
Professions Code section 10032, specifically, whether the test (for determining the
employee or independent contractor status of real estate agents for certain “statutory
19.
purposes”) incorporated therein, applies to the wage and hour provisions of the Labor
Code.4
By its terms, subdivision (b) of Business and Professions Code section 10032
incorporates the test supplied by the Unemployment Insurance Code, i.e., Unemployment
Insurance Code sections 650 and 13004.1, for resolving the employee or independent
contractor question for “statutory purposes,” excluding workers’ compensation purposes.
And as noted above, the provisions of the Unemployment Insurance Code incorporated in
Business and Professions Code section 10032(b), dictate that a real estate agent is an
independent contractor if three basic conditions are satisfied: (1) the agent is licensed;
(2) the agent is paid through commissions; and (3) the agent has signed an independent
contractor agreement.
Premier Valley and Century 21 point out: “For more than a quarter century,
everyone has understood that [Business and Professions Code section 10032(b)] dictates
that real-estate agents are independent contractors for purposes of California labor law
where [the specified] three conditions are met. This understanding is so well-settled, in
fact, that the California Association of Realtors (which sponsored [the bill that enacted
Business and Professions Code section] 10032[(b)]) developed a standard independent-
contractor agreement in line with this test. [Citation.] Thousands of brokers and real-
estate agents, in other words, have structured their affairs based on this understanding.”
Premier Valley and Century 21 further note: “While this action was pending, the
Legislature enacted AB-5. For many industries—particularly those comprising the ‘gig
4 We recognize that the question whether the test set forth in Unemployment
Insurance Code sections 650/13004.1, as incorporated in Business and Professions Code
section 10032(b), applies to PAGA is also implicated. However, we need only address
whether this test, as incorporated in Business and Professions Code section 10032(b),
provides the appropriate test for determining the employee or independent contractor
status of real estate agents for purposes of the wage and hour provisions of the Labor
Code.
20.
economy’—AB-5 effected sweeping changes. It did so by codifying the ‘ABC’
employment test set out in Dynamex Operations West, Inc. v. Superior Court (2018) 4
Cal.5th 903. But the Legislature made expressly clear in AB-5 that it did not intend to
alter the rules for the real-estate industry. As even Whitlach recognizes, in enacting AB-
5 ‘the Legislature wanted to retain [Business and Professions Code section 10032(b)’s]
original meaning.’ [Citation.] Thus, in a section setting out exceptions from the
[application of] the ABC test, the Legislature expressly incorporated into the Labor Code
the rule established by [Business and Professions Code section 10032(b)]. [¶]
Specifically, Labor Code [section] 2778(b)(1) [added by AB-5] provides that the
employment-status test for real-estate agents ‘shall be governed by subdivision (b) of
Section 10032 of the Business and Professions Code,’ and further provide[s] alternative
rules [in] various other provisions that [apply] if [Business and Professions Code section]
10032(b) [is] ‘not applicable.’ ”
We agree with defendants Premier Valley and Century 21 that, upon its enactment
in 1991, Business and Professions Code section 10032, and Unemployment Insurance
Code sections 650/13004.1 as incorporated therein, provided the appropriate test for
resolving the employee or independent contractor question for real estate salespersons for
purposes of the wage and hour provisions of the Labor Code that are at issue here. We
further agree with defendants Premier Valley and Century 21 that after enactment of
Labor Code section 2778 (including Labor Code section 2778(c)(1)) by AB 5 in 2020,5
Business and Professions Code section 10032(b) and Unemployment Insurance Code
sections 650/13004.1 as incorporated therein, continue to provide the appropriate test for
resolving this question for this purpose.
We will first discuss the former proposition or initial issue presented, that is,
whether upon its enactment, Business and Professions Code section 10032(b) (and
5 Labor Code section 2778 was previously numbered as Labor Code section 2750.3.
21.
Unemployment Insurance Code sections 650/13004.1, as incorporated therein), provided
the appropriate test for resolving the employee or independent contractor question for real
estate salespersons for purposes of the wage and hour provisions of the Labor Code.
Thereafter we will address the ultimate question, that is, whether Business and
Professions Code section 10032(b) (and Unemployment Insurance Code sections
650/13004.1, as incorporated therein), continue to provide the appropriate test for
resolving this question for this purpose.
(i) The Unemployment Insurance Code Sections 650/13004.1 Test,
as Incorporated in Business and Professions Code Section
10032(b), Has Applied to the Wage and Hour Provisions of the
Labor Code Since Enactment of Business and Professions Code
Section 10032(b)
Defendants Premier Valley and Century 21 submitted to the trial court, the
legislative history file for SB 630, in connection with their demurrers to the FAC and
SAC, and the trial court took judicial notice thereof. We have reviewed the legislative
history documents that are part of the record on appeal. Senate Bill 630 was introduced
on March 4, 1991, and, amended four times over the following months (on April 15 and
29, July 18 (amended in Assembly), and September 4, 1991 (amended in Assembly)),
before it passed on September 12, 1991. Rather than exhaustively detailing the
legislative history of SB 630, we will highlight a few relevant aspects.
Senate Bill 630 was directed to the Real Estate Law in the Business and
Professions Code. It is instructive to look at an early draft version of SB 630, bearing in
mind that, at the time, “for purposes of the administration of the real estate law, the
salesperson [was treated as] the employee and agent of the broker,” and this concept was
reflected in various provisions of the Real Estate Law. (Grubb & Ellis, supra, 143
Cal.App.3d at p. 895; former Bus. & Prof. Code, § 10132; 2 Miller & Starr, Cal. Real
Estate (4th ed. 2021), § 3:72.) As noted above, at the time, courts were focused on the
relationship between real estate agents and brokers as specified in the Real Estate Law,
22.
when determining the employee or independent contractor status of real estate
salespersons in disparate contexts, including for purposes of tort law and labor law. Early
versions of SB 630 reflect a legislative intent to stem, for certain purposes, the direction
in which the caselaw was evolving, by, among other measures, revamping the definition
of the terms “employee” and “employ,” in the Real Estate Law (subsequent versions of
the bill took a different approach to reach the same result). The legislative history of SB
630 also indicates the Legislature wanted to effectuate the contractual relationship
between brokers and agents for purposes of the Labor Code.
An early version of SB 630 from May 1991, provided, in pertinent part:
“SECTION 1. Section 10032 is added to the Business and Professions
Code, to read:
“10032. As used in this part [of the Real Estate Law], the term ‘employee’
shall include independent contractors and the term ‘employ’ shall refer to
contractual relationships of both an employee and an independent
contractor. All obligations created under this part, all regulations issued by
the commissioner relating to employees, and all other obligations of
employees to members of the public, shall also apply to independent
contractors.
“Sec. 2. This act is intended only to recognize legitimate contractual
relationships of licensees when applying the provisions of the Labor Code,
Revenue and Taxation Code, and the Insurance Code to the broker-
salesperson relationship and not to increase or decrease any existing
obligations of a real estate broker regarding liability or workers
compensation insurance, nor shall it be interpreted or applied to affect the
holding in Gipson[, supra,] 215 Cal.App.2d 190, that real estate
salespersons cannot be classified as independent contractors [for purposes
of tort liability] and that any contract which purports to change that
relationship to that of an independent contractor is invalid.” (First italics
added.)
A bill analysis dated May 1, 1991, conducted by the Department of Finance,
analyzed the version of SB 630 excerpted above. We mention this bill analysis because it
23.
summarizes and highlights points that are reflected in multiple documents throughout the
legislative history file. The bill analysis states:
“Current law [i.e., the Real Estate Law] provides for the Department
of Real Estate (DRE) to license and regulate persons involved in the sale,
lease, or exchange of real property. The current law defines particular
terms with respect to these provisions.
“This bill would add a provision specifying that [as used in the Real
Estate Law] an ‘employee’ includes independent contractors and that the
term ‘employ’ refers to contractual relationships of both employees and
independent contractors. The bill also states legislative intent that existing
contractual relationships of licensees be recognized when applying the
provisions of the Labor Code, Revenue and Taxation Code, and the
Insurance Code to the broker-salesperson relationship. The bill is not
intended to affect existing obligations of real estate brokers regarding
liability, workers compensation, or the provisions of a court case[, i.e.,
Gipson, supra, 215 Cal.App.2d 190,] which does not consider real estate
salespersons to be independent contractors for tort liability purposes.”
“The sponsors of this measure [i.e., the California Association of
Realtors or CAR] wish to clarify in law the contractual relationship that
may exist between real estate brokers and agents; it is common practice for
real estate agents to function as independent contractors of brokers.
Despite the existence of contracts, disputes have arisen with the State
Labor Commissioner over employer/employee relationships during the
mediation of disagreements.
“[Department of Real Estate] is concerned that this bill would not
achieve its goal of clarifying the law. In its analysis of the bill, the
department states, ‘It would do nothing but confuse existing law on the
relationship of brokers and salespersons under all existing laws, even the
Real Estate Law.’ ” (Italics added.)
On a different note, the legislative history file contains multiple references to the
Department of Industrial Relations’ (DIR) opposition to the early versions of SB 630,
including the May 1991 draft version quoted above. The DIR opposed the bill on
grounds that, by redefining “employee” to include independent contractors, the bill was
susceptible to an interpretation, or, rather, misinterpretation, that would potentially
24.
expand the jurisdiction of the Department of Labor Standards Enforcement (DLSE)6 to
include broker-salesperson disputes, thereby increasing the DLSE’s workload and
interfering with the real estate industry’s system of private arbitration. In this vein, a bill
analysis by the DIR from May 1991 states:
“[Senate Bill No. 630] would add Section 10032 to the Business and
Professions Code, relating to real estate salesmen and real estate brokers,
and would establish an employee/employer relationship between these two
occupations. [¶]
“Existing law regulates real estate salesmen and real estate brokers
involved in the sale, lease, or exchange of real property. [¶] … [¶]
“This bill would provide that the term ‘employee’ shall include heretofore
independent contractors engaged in the activities of real estate salesmen
and real estate brokers, and the term ‘employ’ shall refer to the contractual
relationship between these two occupations. The bill would provide that all
obligations created under these provisions shall apply to the heretofore
independent contractor relationship between these two occupations.
[¶] … [¶]
“The Department is concerned that the provisions of this bill would expand
the jurisdiction of the Division of Labor Standards Enforcement to include
the contractual relationship between real estate salesmen and real estate
brokers, and would unnecessarily interfere with the system of private
arbitration [that is set up] between these two occupations to settle any
disputes that may arise between them.
“The Department believes that the bill is unnecessary [for purposes of labor
violations] in that sufficient contractual remedies exist through a binding
arbitration agreement between these two entities such that involvement of
the Division in these disputes is both unwarranted and unnecessary.”
On July 18, 1991, SB 630 was amended in the Assembly by adding three
subsections (i.e., subsections (a), (b), and (c)) to proposed Business and Professions Code
section 10032. Subsection (c), as it appeared in the July 18, 1991 version of SB 630,
6 The DLSE is the administrative agency authorized to enforce California’s labor
laws, including IWC wage orders. (See, e.g., Dynamex, supra, 4 Cal.5th at p. 946; Kilby
v. CVS Pharmacy, Inc. (2016) 63 Cal.4th 1, 13.)
25.
provided: “A real estate broker and a real estate salesperson licensed under that broker
may contract between themselves as independent contractors or as employer and
employee, for purposes of their legal relationship with and obligations to each other.
Characterization of a relationship as either ‘employer and employee’ or ‘independent
contractor’ for statutory purposes, including, but not limited to, withholding taxes on
wages and for purposes of unemployment compensation, shall be governed by Section
650 and Sections 13000 to 13054, inclusive, of the Unemployment Insurance Code. For
purposes of workers compensation the characterization of the relationship shall be
governed by Section 3200, and following, of the Labor Code.” (Italics added.)
On September 4, 1991, SB 630 was further amended in the Assembly, deleting the
proposed new definitions for the terms, “employee” and “employ,” for purposes of the
Real Estate Law. An analysis of the amendments prepared by the Senate Rules
Committee on September 10, 1991, indicates the definitions of the terms “employee” and
“employ” were deleted so as to “[a]llow a real estate broker and a real estate salesperson
licensed under that broker to contract between themselves as independent contractors or
as employer and employee.” The analysis includes a “Comment” as follows: “The
sponsors of this measure wish to clarify in law the contractual relationship that may exist
between real estate brokers and agents; it is common practice for real estate agents to
function as independent contractors of brokers. Despite the existence of contracts,
disputes have arisen with the State Labor Commissioner over employer/employee
relationships during the mediation of disagreements.”
After the September 4, 1991 amendments, the bill took its final form, as follows
(in pertinent part):
“Section 10032 is added to the Business and Professions Code, to read:
“10032. (a) All obligations created under Section 10000, and following,
all regulations issued by the commissioner relating to real estate
salespersons, and all other obligations of brokers and real estate
26.
salespersons to members of the public shall apply regardless of whether the
real estate salesperson and the broker to whom he or she is licensed have
characterized their relationship as one of ‘independent contractor’ or of
‘employer and employee.’
“(b) A real estate broker and a real estate salesperson licensed under that
broker may contract between themselves as independent contractors or as
employer and employee, for purposes of their legal relationship with and
obligations to each other. Characterization of a relationship as either
‘employer and employee’ or ‘independent contractor’ for statutory
purposes, including, but not limited to, withholding taxes on wages and for
purposes of unemployment compensation, shall be governed by Section
650 and Sections 13000 to 13054, inclusive, of the Unemployment
Insurance Code. For purposes of workers compensation the
characterization of the relationship shall be governed by Section 3200, and
following, of the Labor Code.
“SEC. 2. This act shall not be interpreted or applied to affect the obligation
or ability, if any, of a broker to maintain workers compensation insurance,
or the holding in [Gipson, supra,] 215 Cal.App.2d 190, that a real estate
broker may be vicariously liable under the doctrine of respondeat superior
for tortious acts of a salesperson licensed under the broker; and further, that
real estate salespersons cannot be classified as independent contractors for
purposes of liability to third parties and that any provision in a contract
which purports to change that relationship from that of an agent to
independent contractor is invalid as being contrary to law for purposes of
tort liability to third parties.” (Italics added.) (See Stats. 1991, ch. 679.)
The legislative history of SB 630, which enacted Business and Professions Code
section 10032, indicates that in enacting this statute, the Legislature intended that, for
certain “statutory purposes,” which included parts of the Labor Code, the employee or
independent contractor question for real estate salespersons would be resolved by
application of the three-factor test set forth in Unemployment Insurance Code sections
650/13004.1. Thus, as noted above, early versions of the bill expressly stated: “This act
is intended only to recognize legitimate contractual relationships of licensees when
applying the provisions of the Labor Code, Revenue and Taxation Code, and the
Insurance Code to the broker-salesperson relationship and not to increase or decrease any
existing obligations of a real estate broker regarding liability or workers compensation
27.
insurance.” Later versions of the bill supplanted the specific reference to the “Labor
Code, Revenue and Taxation Code, and the Insurance Code,” with the broader term
“statutory purposes.”
Many additional legislative history documents concerning SB 630 indicate that the
Legislature intended and anticipated that Business and Professions Code section 10032(b)
would apply to various provisions of the Labor Code. For example, another analysis, this
one by the Assembly Committee on Consumer Protection, Governmental Efficiency and
Economic Development, dated June 19, 1991, states that the bill “is intended only to
recognize legitimate contractual relationships of licensees (independent contractor status)
when applying provisions of the Labor Code, Revenue and Taxation Code, and the
Insurance Code to the broker-salesperson relationship,” and “is not intended to increase
or decrease any existing obligations of a real estate broker regarding liability or workers
compensation insurance.”
The June 19, 1991 committee analysis further notes: “A real estate salesperson
who is ‘employed’ by a broker is somewhat of a hybrid because while the salesperson has
no official hours and in many respects is not subject to control by the broker in how sales
are accomplished, the law does require the broker to perform certain supervisorial tasks
with respect to the salesperson which take the relationship out of the true independent
contractor realm.” The analysis adds: “The [bill] sponsor [i.e., the California
Association of Realtors or CAR] notes that the bill, in establishing an independent
contractor relationship between a broker and a salesperson for purposes of … laws such
as tax law … or labor law, is not intended to interfere with any other responsibilities that
currently exist in tort law. Thus, the bill contains specific language to clarify this and the
fact that the bill does not overturn the holding of the court in the Gipson case regarding
tort liability.” (Italics added.)
28.
The analysis also provides: “The Department of Real Estate is neutral on this bill.
The department was originally concerned that the bill might weaken a broker’s obligation
to supervise a salesperson or a broker’s liability to third parties. The amendment which
clarified that the provision is not to be interpreted to apply to affect the Gipson case
alleviated these concerns.” The analysis notes that the bill’s sponsor, that is, CAR, was
motivated by “problems with the State Labor Commissioner,” but indicates the bill
sought to accomplish its goals “indirectly by adding a section to the Business and
Professions Code,” rather than by directly amending the Labor Code and tax codes,
because of various complications (such as the need to exclude workers compensation
obligations).
The indications in the legislative history of SB 630 that the bill was proposed in
response to the position taken by the State Labor Commissioner, in some instances, that
real estate agents were employees for purposes of disputes over commissions, among
other things, suggest that provisions of the Business and Professions Code section
10032(b), including the test set forth in Unemployment Insurance Code sections
650/13004.1 incorporated therein, were intended to apply to the Labor Code, or at least to
its wage and hour provisions.
Importantly, if ironically, the Department of Industrial Relations opposed the early
versions of SB 630 on grounds the language therein could potentially result in expanding
the jurisdiction of the DLSE to cover disputes between brokers and real estate
salespersons. It is noteworthy that the department evidently dropped its opposition once
the bill was amended to accommodate the department’s concerns by, for instance,
adopting the test forth in Unemployment Insurance Code sections 650/13004.1 for
determining the status of real estate agents for “statutory purposes,” including the wage
and hour provisions of the Labor Code.
29.
An “enrolled bill report” prepared by DIR on September 19, 1991, recommends
that the Governor sign the bill. The report states: “The sponsors have indicated that they
wish to have the benefits of the independent contractor relationship as between real estate
salespersons and real estate brokers in resolving disputes over commissions, except for
purposes of workers’ compensation … where an employer/employee relationship would
apply [pursuant to Borello, supra, 48 Cal.3d 341]. Although the language contained in
this bill which allows the parties to characterize their relationship as being that of
independent contractor or employer/employee is confusing and could lead to enforcement
problems in the context of other employment relationships, the bill as enrolled, does not
present any enforcement issues to be considered by the Department of Industrial
Relations.”
The implications of the legislative history of SB 630 are reinforced by the text of
Business and Professions Code section 10032(b). While Business and Professions Code
section 10032(b) adopts the Unemployment Insurance Code sections 650/13004.1 test for
determining the employee or independent contractor status of real estate agents for
“statutory purposes,” it carves out workers compensation as an area where the employee
or independent contractor status of real estate agents is to be determined pursuant to the
Borello test. Specifically, Business and Professions Code section 10032(b) states: “For
purposes of workers compensation the characterization of the relationship shall be
governed by Section 3200, and following, of the Labor Code.” Pursuant to Labor Code
section 3351, for purposes of workers compensation, “ ‘[e]mployee[s]’ include most
persons ‘in the service of an employer under any …contract of hire’ [citation], but do not
include independent contractors.” (See Borello, supra, 48 Cal.3d at p. 349.) As for
independent contractors, under Labor Code section 3353, for purposes of workers
compensation, independent contractor means “ ‘any person who renders service for a
specified recompense for a specified result, under the control of his principal as to the
30.
result of his work only and not as to the means by which such result is accomplished.’ ”
(See Borello, supra, at p. 349.) Our Supreme Court interpreted these workers
compensation provisions in Borello and held that, for purposes of workers compensation,
“[t]he determination of employee or independent contractor status is one of fact,” to be
decided by application of the control of details test augmented by other relevant factors.
(See Borello, supra, at pp. 349, 350-351.)
In short, Business and Professions Code section 10032(b), creates an express
exception for a subpart of the Labor Code, that is, workers compensation, in that it
provides that determination of the employee or independent contractor status of real
estate agents for purposes of workers compensation is to be made pursuant to the Borello
test. This carve out for workers compensation indicates that the Unemployment
Insurance Code sections 650/13004.1 test is applicable to other parts of Labor Code, and
specifically, as relevant here, the wage and hour provisions of the Labor Code.7 (See
Harris v. Olszewski (6th Cir. 2006) 442 F.3d 456, 469 [“The very nature of an exception
is to carve out matters otherwise covered by the rule.”].) If the Legislature had intended
determination of the employee or independent contractor status of real estate agents for
purposes of the Labor Code was to be made pursuant to the Borello test, a specific carve
out to this effect for workers compensation would not have been necessary.
Another factor indicating that the Unemployment Insurance Code sections
650/13004.1 test, as incorporated in Business and Professions Code section 10032(b),
was intended to apply more broadly than simply in determining the employee or
independent contractor status of real estate agents for purposes of tax withholding and
7 The uncodified “Section 2” of SB 630 (see above) emphasizes, “[t]his act shall not
be interpreted or applied to affect the obligation or ability, if any, of a broker to maintain
workers compensation insurance.” Had the Unemployment Insurance sections
650/13004.1 test been inapplicable to the Labor Code altogether, there would be no need
for this targeted disclaimer.
31.
unemployment compensation, is that this test was already applicable for the latter
purposes. By incorporating this test into Business and Professions Code section
10032(b), the Legislature appears to have intended this test to apply for a broader array of
“statutory purposes.”
We need not clarify the full scope of the term, “statutory purposes,” in Business
and Professions Code section 10032(b), because the question before us is specifically
whether this term encompasses the wage and hour provisions of the Labor Code (see
footnote 3, ante). In light of the text and legislative history of SB 630, we conclude the
test forth in Unemployment Insurance Code sections 650/10034.1, incorporated in
Business and Professions Code section 10032(b), as enacted by SB 630, applied to the
wage and hour provisions of the Labor Code from the date of enactment of Business and
Professions Code section 10032.
(ii) Assembly Bill 5 Adopted the Test Encompassed in Business and
Professions Code Section 10032(b), for Resolving the Employee
or Independent Contractor Question for Real Estate
Salespersons for Purposes of the Labor Code’s Wage and Hour
Provisions
Both parties take the position, which we accept, that since AB 5 and Labor Code
section 2778, subdivision (c) and (c)(1) incorporate Business and Professions Code
section 10032(b) without any change or limitation, it follows the Legislature did not
intend to make any change to the latter statute but, rather, adopted it with its original
meaning and scope intact. As noted above, AB 5 codified Dynamex’s ABC test as the
controlling test for determining a worker’s employment status for purposes of the Labor
Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare
Commission. (See Lab. Code, § 2775, subd. (b)(1).) However, AB 5 also enacted Labor
Code section 2778, subdivisions (c) and (c)(1), which collectively remove real estate
licensees from the purview of Labor Code section 2775, subdivision (b)(1) and
application of Dynamex’s ABC test.
32.
To reiterate, Labor Code section 2778, subdivision (c) and (c)(1), provide as
follows: “(c) Section 2775 and the holding in Dynamex do not apply to the following,
which are subject to the Business and Professions Code: [¶] (1) A real estate licensee
licensed by the State of California pursuant to Division 4 (commencing with Section
10000) of the Business and Professions Code, for whom the determination of employee or
independent contractor status shall be governed by subdivision (b) of Section 10032 of
the Business and Professions Code. If that section is not applicable, then this
determination shall be governed as follows: [¶] (A) For purposes of unemployment
insurance by Section 650 of the Unemployment Insurance Code. [¶] (B) For purposes of
workers’ compensation by Section 3200 et seq. [of the Labor Code]. [¶] (C) For all other
purposes in the Labor Code by Borello. The statutorily imposed duties of a responsible
broker under Section 10015.1 of the Business and Professions Code are not factors to be
considered under the Borello test.” (Italics added.)
Here, Whitlach’s complaint complies with the requirements of PAGA by alleging
violations of the Labor Code, specifically, Labor Code sections 226.8 (misclassification
of an employee as an independent contractor); 2802 (failure to reimburse reasonable
business expenses); 221-223 and 400-410 (taking of unlawful deductions from wages);
204 and 226 (failure to timely pay wages or provide proper wage statements); 1194,
1197, 1197.1 (failure to pay minimum wages); and 226.7, 512, and 558 (failure to
provide required meal periods). Whitlach’s complaint also alleges violations of wage
orders in a few instances, in conjunction with corresponding Labor Code violations, as in
his allegations regarding failure to pay minimum wages and failure to provide required
meal periods, but these alleged wage order violations are derivative of Labor Code
provisions.8 More importantly, for our purposes, Whitlach cannot directly enforce,
8 For example, the Labor Code provides that the minimum wage set by the IWC is
the minimum wage (Lab. Code, § 1197), and expressly authorized the IWC to determine
the applicable minimum wage (Lab. Code, §§ 1173, 1178.5, 1182, 1185). The same is
33.
through PAGA, any alleged wage order violations; he can only do so indirectly, by
enforcing provisions of the Labor Code.
As noted, Whitlach’s instant PAGA claim alleges violations of the wage and hour
provisions of the Labor Code. To the extent Whitlach contends his PAGA claim alleges,
in part, violations of IWC wage orders, which he posits are not “statutory,” within the
meaning of Business and Professions Code section 10032(b), that argument is not well
taken. The IWC wage orders are not independently actionable; rather, Whitlach seeks to
enforce certain provisions of the wage orders through the vehicle of PAGA, which
“authorizes recovery of civil penalties only for violations of the Labor Code.” (Thurman
v. Bayshore Transit Management, Inc. (2012) 203 Cal.App.4th 1112, 1131-1132 [citing
PAGA, Lab. Code, § 2699, subd. (a),9 and noting “ ‘PAGA allows the recovery of civil
penalties only for violations of “this code,” meaning the California Labor Code’ ”],
overruled on other grounds by ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175.)
“Although PAGA actions can serve to indirectly enforce certain wage order provisions by
enforcing statutes that require compliance with wage orders (e.g., § 1198, which prohibits
longer work hours than those fixed by wage order or employment under conditions
prohibited by a wage order), the PAGA does not create any private right of action to
directly enforce a wage order.” (Thurman, supra, at p. 1132, fn. omitted; see, e.g.,
true for meal-and-rest-break rules (Lab. Code, §§ 226.7, 516, 1198). The wage orders are
thus “incorporate[d]” into, statutes. (Gonzales v. San Gabriel Transit, Inc. (2019) 40
Cal.App.5th 1131, 1158.)
9 Section 2699, subdivision (a), which establishes the right of an aggrieved
employee to sue on behalf of other employees, states: “Notwithstanding any other
provision of law, any provision of this code that provides for a civil penalty to be
assessed and collected by the Labor and Workforce Development Agency or any of its
departments, divisions, commissions, boards, agencies, or employees, for a violation of
this code, may, as an alternative, be recovered through a civil action brought by an
aggrieved employee on behalf of himself or herself and other current or former
employees pursuant to the procedures specified in Section 2699.3.” (Italics added.)
34.
Cortez v. Doty Bros. Equipment Co. (2017) 15 Cal.App.5th 1, 14 [“[A]n employee may
enforce the protections of the wage order in court only by bringing a claim under the
Labor Code.”].)
“Only the Legislature, through the enactment of a statute, can create a private right
of action to directly enforce … a wage order.” (Thurman, supra, 203 Cal.App.4th at p.
1132.) “The IWC has not created, and has no power to create, a private right of action
for violation of a wage order, and we are aware of no statute that creates a private right of
action for a violation of an IWC wage order when the violation at issue is not also a
violation of the Labor Code. Absent statutory authorization, there is no right of action
under the PAGA to enforce an IWC wage order.” (Ibid.)
Pivoting back to Business and Professions Code section 10032(b), we concluded
above that this statute adopts the test set forth in Unemployment Insurance Code sections
650/13004.1 for purposes of determining employee or independent contractor status for
real estate agents for certain “statutory purposes,” including for purposes of the wage and
hour provisions of the Labor Code. Assembly Bill No. 5, for its part, adopts Business
and Professions Code section 10032(b)—and, in turn, the Unemployment Insurance Code
sections 650/13004.1 test incorporated therein—as the primary test for “determination of
employee or independent contractor status” for “real estate licensees,” where Business
and Professions Code section 10032(b), is “applicable.”
Here, Whitlach had entered into a written contract with Premier Valley specifying
that Whitlach was an independent contractor, as expressly contemplated by Business and
Professions Code section 10032(b). Furthermore, as discussed above, the primary test for
determining employee or independent status under Business and Professions Code
section 10032(b) (i.e., the test set forth in Unemployment Insurance Code sections
650/13004.1) applies to the wage and hour provisions of the Labor Code. Given these
circumstances, we conclude that, under Labor Code section 2778(c)(1), the three-factor
35.
test set forth in sections 650/13004.1 of the Unemployment Insurance Code as
incorporated in Business and Professions Code section 10032(b), provides the standard
for determining Whitlach’s employee or independent contractor status for purposes of his
wage and hour claims.
The question whether Whitlach is an employee or independent contractor is
pivotal for the survival of Whitlach’s substantive claims because the wage and hour
provisions of the Labor Code apply only to employees. (Dynamex, supra, 4 Cal.5th 903,
913 [California’s labor laws protect only employees, not independent contractors].)
Resolving the employee or independent contractor question by applying the three-factor
test set forth in sections 650/13004.1 of the Unemployment Insurance Code requires
consideration of whether the relevant real estate salesperson, here, Whitlach, (1) was a
licensed real estate agent; (2) was paid by commission; and (3) had entered into a written
contract regarding his services as a real estate agent that specified he was an independent
contractor for state tax purposes. As addressed above, under this test, Whitlach was
undisputedly an independent contractor as a matter of law. The trial court therefore
properly granted the demurrer to the SAC, without leave to amend. We are not
persuaded by Whitlach’s arguments to the contrary.10
III. Labor Code Section 2778(c)(1) is Constitutional
Whitlach argues, in the alternative, that in carving out an exception to the
codification of Dynamex’s ABC test and adopting a unique test for resolving the
employee or independent contractor question for real estate salespersons, Labor Code
section 2778(c)(1) violates equal protection and is unconstitutional under the California
Constitution. (See Cal. Const., art. 1, § 7, subd. (a).) We reject this contention.
10 Whitlach filed, on January 18, 2022, a request for judicial notice as to certain
judicial and legislative materials relevant to his arguments on appeal. Defendants
Premier Valley and Century 21 did not oppose the request. Accordingly, the request for
judicial notice is granted.
36.
“ ‘ “The concept of equal protection of the laws compels recognition of the
proposition that persons similarly situated with respect to the legitimate purpose of the
law receive like treatment.” ’ ” (People v. Chatman (2018) 4 Cal.5th 277, 287
(Chatman).) “At core, the requirement of equal protection ensures that the government
does not treat a group of people unequally without some justification.” (Id. at p. 288.)
Where, as here, “the law challenged neither draws a suspect classification nor burdens
fundamental rights,” courts will “find a denial of equal protection only if there is no
rational relationship between a disparity in treatment and some legitimate government
purpose.” (Id. at pp. 288-289.) “This core feature of equal protection sets a high bar
before a law is deemed to lack even the minimal rationality necessary for it to survive
constitutional scrutiny.” (Id. at p. 289.) “Coupled with a rebuttable presumption that
legislation is constitutional, this high bar helps ensure that democratically enacted laws
are not invalidated merely based on a court’s cursory conclusion that a statute’s tradeoffs
seem unwise or unfair.” (Ibid.)
“In order to decide whether a statutory distinction is so devoid of even minimal
rationality that it is unconstitutional as a matter of equal protection, we typically ask two
questions. We first ask whether the state adopted a classification affecting two or more
groups that are similarly situated in an unequal manner. [Citation.] If we deem the
groups at issue similarly situated in all material respects, we consider whether the
challenged classification ultimately bears a rational relationship to a legitimate state
purpose. [Citation.] A classification in a statute is presumed rational until the challenger
shows that no rational basis for the unequal treatment is reasonably conceivable.”
(Chatman, supra, 4 Cal.5th at p. 289.)
Whitlach has failed to show that real estate salespersons are similarly situated as
other workers who are not subject to Labor Code section 2778(c)(1). (See Kimco Staffing
Services., Inc. v. State of California (2015) 236 Cal.App.4th 875, 885 [“ ‘[The] initial
37.
inquiry is not whether persons are similarly situated for all purposes, but “whether they
are similarly situated for purposes of the law challenged.” ’ ”].) The real estate sales
profession historically has a unique structure that does not have a precise analog among
other professions. The unique structure of the real estate sales profession appears to have
been a key consideration in the distinct tests adopted in Labor Code section 2778(c)(1),
for purposes of resolving the employee or independent contractor question for real estate
salespersons. (See Am. Soc. of Journalists and Authors, Inc. v. Bonta (9th Cir. 2021) 15
F.4th 954, 965 [noting, with respect to AB 5: “It is certainly conceivable that differences
between occupations warrant differently contoured rules for determining which
employment test better accounts for a worker’s status.”].) To the extent the unique
structure of the real estate sales profession appears to have informed the substance of
Labor Code section 2778(c)(1), we cannot say that real estate salespersons are similarly
situated as other workers for purposes of this law.
In short, Whitlach’s equal protection claim to the effect that Labor Code section
2778(c)(1) violates equal protection by treating real estate salespersons differently than
other workers, fails.
IV. The Independent Contractor Agreement (ICA) Between Premier Valley and
Whitlach is not Unconscionable and Unenforceable
Whitlach next contends, in the alternative, that his ICA is unconscionable in large
part because it designates him an independent contractor. To prevail, he must show both
“procedural” and “substantive” unconscionability. (Armendariz v. Foundation Health
Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 114.) Whitlach alleges that the ICA is
procedurally unconscionable because it is a contract of adhesion. “When, as here, there
is no other indication of oppression or surprise, ‘the degree of procedural
unconscionability of an adhesion agreement is low, and the agreement will be
enforceable unless the degree of substantive unconscionability is high.’ ” (Serpa v.
38.
California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704 (Serpa); see The
McCaffrey Group, Inc. v. Superior Court (2014) 224 Cal.App.4th 1330, 1349
(McCaffrey).)
Substantive unconscionability “ ‘pertains to the fairness of an agreement’s actual
terms and to assessments of whether they are overly harsh or one-sided.’ ” (McCaffrey,
supra, 224 Cal.App.4th at p. 1349.) Because “[c]ommerce depends on the enforceability,
in most instances, of a duly executed written contract,” “[a] party cannot avoid a
contractual obligation merely by complaining that the deal, in retrospect was unfair or a
bad bargain.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 911.)
Instead, a contract term must be “ ‘ “ ‘ “overly harsh [citation], “ ‘unduly oppressive’ ”
[citation], “ ‘so one-sided as to shock the conscience’ ” [citation], or “unfairly one-
sided.” ’ ” (Id. at pp. 910-911.) “ ‘All of these formulations point to the central idea that
unconscionability doctrine is concerned not with “a simple old-fashioned bad bargain,”
[citation] but with terms that are “unreasonably favorable to the more powerful party.” ’ ”
(Id. at p. 911.)
A. The ICA is Not Unconscionable Merely Because It Designates Whitlach
as an Independent Contractor
Whitlach’s main argument is that sections 3A and 3F of the ICA are
unconscionable because they establish an independent contractor relationship and thereby
deprive him of the protection of statutes that apply only to employees. We are not
persuaded. Whitlach’s argument flies in the face of Business and Professions Code
section 10032(b), which authorizes brokers and agents to determine their relationship by
contract and expressly allows for real estate agents to operate as independent contractors.
(See Connick v. Teachers Ins. and Annuity Ass’n of Am. (9th Cir. 1986) 784 F.2d 1018,
1021 [contract was “not unconscionable” where it was “expressly permitted by statute”].)
39.
B. Whitlach’s Other Claims of Unconscionability Have No Merit
Whitlach contends that four provisions of the ICA—sections 4A, 5A, 8F, and 9—
result, in combination, in an illegal forfeiture, and are therefore unconscionable. These
provisions collectively (1) require any representation agreement to be in the name of the
broker, (2) specify that files are the property of the broker, (3) allow other agents to take
over clients upon termination of the ICA, and (4) permit mutual termination of the
relationship without cause. More specifically, Whitlach claims these provisions effect a
forfeiture as in a situation where, for example, a salesperson who quits or is fired before a
home goes under contract forfeits his or her investment of time and money in generating
the client and loses out on commissions from future transactions. We are not persuaded,
as this hypothetical situation is incidental to the way business is conducted in the real
estate industry. If the agent does not make a sale, he or she does not get compensated,
but if the agent makes a sale and leaves, under section 8F of the ICA, he or she is entitled
to the net commission.
Although the ICA does not have a non-compete provision, Whitlach next argues
that two provisions (§§ 5 and 9) effectively prohibit competing after termination and are
therefore unconscionable. Section 5 provides that the “Broker’s method of conducting
business” is a “trade secret,” and it prevents salespersons from using for personal
advantage “any information gained for or from the business, or files of Broker.”
Section 9 prevents former real estate agents from interfering “with existing contractual
obligations.” We need not further examine Whitlach’s claims as to these post-
termination provisions as both are severable in any event; they are not related to the
ICA’s core purpose, which is to establish an independent contractor relationship between
the parties (the agreement is titled, “Independent Contractor Agreement” and the first
substantive section is titled “Independent Contractor Relationship”). (See Marathon
Entertainment, Inc. v. Blasi (2008) 42 Cal.4th 974, 996 [“ ‘[i]f the illegality is collateral
40.
to the main purpose of the contract, and the illegal provision can be extirpated from the
contract,’ ” then the provision may be severed]; accord Baeza v. Superior Court (2011)
201 Cal.App.4th 1214, 1230.)
Whitlach further contends that section 17 of the ICA, which provision entitles
brokers or agents to attorney’s fees upon prevailing in litigation or arbitration, is
unconscionable in the context of a PAGA claim. The availability of attorney’s fees on
one particular type of claim is properly considered collateral to the ICA’s core purpose of
establishing an independent contractor relationship and is wholly or partially severable.
(See Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 183-184
[collecting cases]; Serpa, supra, 215 Cal.App.4th at p. 710; Bermudez v. PrimeLending
(C.D. Cal. Aug. 14, 2012, LA CV12-00987 JAK (Ex)) 2012 U.S. Dist.LEXIS 197023.)
Finally, Whitlach contends that section 12F, a confidentiality provision specific to
arbitration, is unconscionable. However, Whitlach admits he waived this point by
omitting it from his complaint. Furthermore, arbitration clauses are “viewed as severable
from the main contract” (Luxor Cabs, Inc. v. Applied Underwriters Captive Risk
Assurance Co. (2018) 30 Cal.App.5th 970, 979), so the confidentiality provision would
be severable from the ICA even if the whole arbitration scheme was alleged to be
unconscionable.
V. Whitlach’s Separate Employment Agreement for His Sales Manager Position
is Not Relevant for Purposes of His Representative PAGA Cause of Action
Finally, Whitlach argues the trial court “improperly ignored” his management
employment agreement, in ruling on the demurrer to the SAC. (Unnecessary
capitalization omitted.) We reject this contention.
Whitlach brought his representative PAGA cause of action on behalf of
“ ‘aggrieved employees,’ ” including himself, who were “real estate salespersons,” that
is, persons in a “position that involved the sales of homes and/or real estate.” (SAC,
41.
¶ 13.) Among its factual allegations, the SAC stated that Premier Valley committed
multiple Labor Code violations with regard to these salespersons. (SAC, ¶¶ 13-22.) The
SAC further alleged that Whitlach and the other aggrieved employees were “required to
identify themselves as salespersons of [Premier Valley],” engaged in “[s]elling real
estate,” and generated “sales commissions” for Premier Valley. (SAC, ¶¶ 16, 17.)
Under the management employment agreement, Whitlach accepted employment
“in a management position as Sales Manager.” In this regard, the SAC alleged, in a
single paragraph, that to the extent some aggrieved employees, including Whitlach, had
entered into employment agreements for management positions, they were designated as
“employees” therein, and their respective compensation for their management roles was
in salary form, and, therefore, they did “not meet the criteria set forth in Unemployment
Ins. Code[,] [section] 650.” (SAC, ¶ 38.)
However, since the “aggrieved employees” on whose behalf the PAGA cause of
action was brought were “real estate salespersons,” the operative agreements and relevant
form of compensation were those related to their roles as “real estate salespersons.”
Thus, since Whitlach’s management employment agreement only governed his work “in
a management position as Sales Manager,” the agreement had no relevance to his PAGA
cause of action.
The trial court concluded that the SAC’s “cursory reference to a concurrent
employment agreement [did] not support a PAGA claim based on the same, nor [did] the
pleading allege facts which relate the terms of the employment agreement to the
challenged statutory provisions.”
We agree with the trial court that the isolated reference to a management
employment contract in the SAC does not support a separate PAGA claim. The sole
allegation in the SAC relating to the management employment agreement was that, in
light of the agreement, Whitlach and other managers “d[id] not meet the criteria set forth
42.
in Unemployment Ins. Code § 650.” (SAC, § 38.) In other words, the SAC alleged that
the existence of the management employment agreement made Whitlach an employee for
all purposes, not that his rights were violated in his work as a manager. Nor did the SAC
allege that the management employment agreement was a novation or modification of his
independent contractor agreement, as Whitlach now suggests.
Accordingly, the trial court properly sustained the demurrer to the SAC.
DISPOSITION
The judgment is affirmed. Defendants Premier Valley and Century 21 are
awarded their respective costs on appeal.11
SMITH, J.
WE CONCUR:
LEVY, Acting P. J.
SNAUFFER, J.
11 Recently, on September 7, 2022, when the case was ready for oral argument,
Premier Valley and Century 21 filed a motion to dismiss this appeal without prejudice.
Premier Valley and Century 21 contended the motion should be granted because a new
decision from the United States Supreme Court, Viking River Cruises, Inc. v. Moriana
(2022) 142 S.Ct. 1906, had changed the law regarding the ability of defendants, in a
PAGA representative action, to compel the plaintiff to arbitrate. More specifically,
Premier Valley and Century 21 stated: “Under the Federal Arbitration Act, 9 U.S.C. § 1,
et seq., as construed by the [U.S.] Supreme Court in Viking River Cruises, Inc. v.
Moriana (2022) 142 S.Ct. 1906, Whitlach’s PAGA claim is now arbitrable and
California’s rule to the contrary is preempted. Accordingly, Whitlach’s appeal should be
dismissed without prejudice so Respondents can assert their rights to arbitrate under
Viking River.” Whitlach filed an opposition to the motion to dismiss the appeal filed by
Premier Valley and Century 21 and the latter parties filed a reply. Our affirmance of the
judgment of dismissal has rendered moot the motion to dismiss this appeal brought by
Premier Valley and Century 21, and, consequently, we will not express our views on the
merits of that motion.
43.
Filed 12/19/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
JAMES R. WHITLACH,
F082322
Plaintiff and Appellant,
(Super. Ct. No. CV-19-005627)
v.
ORDER GRANTING REQUEST
PREMIER VALLEY, INC. et al., FOR PUBLICATION
Defendants and Respondents.
As the nonpublished opinion filed on November 18, 2022, in the above entitled
matter meets the standards for publication specified in the California Rules of Court,
rule 8.1105(c), the request for publication filed by amicus curiae is hereby granted and it
is ordered that the opinion be certified for publication in the Official Reports.
SMITH, J.
WE CONCUR:
LEVY, Acting P.J.
SNAUFFER, J.