In re Field Asset Services, Inc. ( 2024 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 In re: FIELD ASSET SERVICES, INC., et Case No. 3:13-cv-00057-WHO al., 8 and related cases ORDER ON REMAINING ISSUE 9 FROM DEFENDANTS' MOTION FOR SUMMARY JUDGMENT (TRIAL 10 GROUP ONE) 11 Re: Dkt. No. 651 12 13 The parties filed cross motions for summary judgment that I addressed in my prior orders, 14 except for the defendants’ argument about the “corporate vendor plaintiffs” and joint employment 15 theories.1 This Order addresses those arguments and denies the defendants’ motion for summary 16 judgment because the claims are not, and do not need to be, joint employment claims. 17 BACKGROUND 18 This order incorporates by reference and assumes familiarity with the facts and background 19 laid out in the Prior Orders. In brief, the plaintiffs contracted with the defendants (Field Asset 20 Services, “FAS”) to provide property preservation services at the beginning of the Great Recession 21 and lasting almost until this case was filed in 2013. They performed different tasks at the 22 properties, including construction, yard work, cleaning, and trash hauling. The parties dispute 23 24 1 The defendants filed a cross motion for summary judgment or in the alternative, summary adjudication. (“D. Mot.”) [Dkt. No. 651]. The plaintiffs opposed. (“P. Oppo.”) [Dkt. No. 669]. 25 The defendants replied. (“D. Repl.”) [Dkt. No. 674]. I issued a tentative order, [Dkt. No. 683], and held a hearing at which counsel for both parties appeared, [Dkt. No. 687]. Subsequently, I 26 issued an order for supplemental briefing on two issues, including the defendants’ arguments about the corporate vendor plaintiffs. [Dkt. No. 686]. The defendants filed their supplemental 27 brief. (“D. Supp. Br.”) [Dkt. No. 688]. The plaintiffs filed a response. (“P. Supp. Br.”) [Dkt. No. 1 how the tasks and projects were assigned, how much choice the plaintiffs had in accepting or 2 declining projects, how much FAS controlled the execution of the assignments, and how payments 3 worked. Some plaintiffs, including the three at issue in this motion, owned and operated corporate 4 entities that brought on additional people to do the work for FAS. Matthew Cohick’s corporation, 5 Monster Mowers, started as a sole proprietorship but after incorporation it employed dozens of W- 6 2 employees. 7 The plaintiffs were initially members of a certified class action that sued the defendants for 8 overtime pay, waiting time penalties, and expense reimbursements related to their property 9 preservation work. Members of the class were awarded significant damages at trial but on appeal, 10 the Ninth Circuit decertified the class, reversed summary judgment, and remanded for 11 consideration of additional issues. Bowerman v. Field Asset Servs., 60 F.4th 459 (9th Cir. 2023), 12 as amended. Former members of the class subsequently filed individual actions, three of which 13 are at issue in this Order. 14 LEGAL STANDARD 15 Summary judgment on a claim or defense is appropriate “if the movant shows that there is 16 no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of 17 law.” Fed. R. Civ. Proc. 56(a). In order to prevail, a party moving for summary judgment must 18 show the absence of a genuine issue of material fact with respect to an essential element of the 19 non-moving party’s claim, or to a defense on which the non-moving party will bear the burden of 20 persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has 21 made this showing, the burden then shifts to the party opposing summary judgment to identify 22 “specific facts showing there is a genuine issue for trial.” Id. The party opposing summary 23 judgment must then present affirmative evidence from which a jury could return a verdict in that 24 party’s favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257 (1986). 25 On summary judgment, the court draws all reasonable factual inferences in favor of the 26 non-movant. Id. at 255. In deciding a motion for summary judgment, “[c]redibility 27 determinations, the weighing of the evidence, and the drawing of legitimate inferences from the 1 does not raise genuine issues of fact and is insufficient to defeat summary judgment. See 2 Thornhill Publ’g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). 3 “If the nonmovant bears the burden of persuasion on the ultimate issue, the movant may 4 make its required initial showing that there is no genuine dispute of material fact by demonstrating 5 that ‘there is an absence of evidence to support the non-moving party’s case.’” Pac. Gulf Shipping 6 Co. v. Vigorous Shipping & Trading S.A., 992 F.3d 893, 897-98 (9th Cir. 2021) (first citing Fed. 7 R. Civ. Proc. 56(c)(1)(A); and then quoting In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th 8 Cir. 2010)). “The burden of production then shifts to the nonmovant, who must go beyond the 9 pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and 10 admissions on file, designate specific facts showing that there is a genuine issue for trial.” Id. 11 (internal quotation marks omitted) (quoting Celotex Corp., 477 U.S. at 324). “The nonmovant’s 12 burden of production at this point ‘is not a light one’—it ‘must show more than the mere existence 13 of a scintilla of evidence’ or ‘some “metaphysical doubt’ as to the material facts at issue.”’” Id. 14 (quoting Oracle Sec. Litig., 627 F.3d at 387). The nonmoving party “must come forth with 15 evidence from which a jury could reasonably render a verdict in the non-moving party’s favor,” 16 assuming that “all justifiable inferences are . . . drawn in its favor.” Id. (quoting Oracle Sec. 17 Litig., 627 F.3d at 387). 18 DISCUSSION 19 Three plaintiffs in Group 1— Darin Bush, Sam Cherrin, and Matthew Cohick (the 20 “corporate vendor plaintiffs”)—owned and operated corporate entities that contracted with FAS.2 21 The defendants seek summary judgment on their claims for overtime, waiting time penalties, and 22 expense reimbursements because, in the defendants’ view, these claims had to be brought as joint 23 employment claims rather than independent contractor misclassification claims if the plaintiffs 24 want to hold the defendants liable as employers. Because the plaintiffs did not bring claims under 25 a joint employer theory, defendants argue, they cannot bring the claims at all. All claims must be 26 dismissed. See D. Mot. 23:22-28:7. 27 1 The parties’ papers were not a vision of clarity. This analysis will explain their arguments, 2 the case law, and the reasons why these claims were properly brought as misclassification claims, 3 along with how the defendants can still assert similar arguments to the jury to defend against 4 liability. First, I will provide a brief overview of how I reached this conclusion. Then, I will lay 5 out the relevant law in the area, including the cases relied upon by the parties. Finally, I will apply 6 the law to this case. 7 I. OVERVIEW 8 The defendants largely rely on the Ninth Circuit’s decision in Bowerman, arguing that the 9 Ninth Circuit held that the corporate vendor plaintiffs’ claims had to be brought as joint 10 employment claims and had to be dismissed if not brought as such. As explained below, that is 11 not what the appellate court held. In instructing me to consider the “joint employment” issues on 12 remand, the Ninth Circuit was responding to the defendants’ arguments that the Borello 13 employment test3 should apply to these claims, not that these claims were joint employment 14 claims in disguise. And while the defendants have a point that these corporate vendor plaintiffs 15 differ from the sole proprietors in that they operated larger corporate entities that employed other 16 workers—ranging from a dozen to 75 or more—these arguments and defenses fit neatly into the 17 application of the business-to-business (“B2B”) exception.4 Indeed, as the plaintiffs pointed out at 18 the hearing, the very existence of the B2B exception shows that the California legislature did not 19 20 3 The multi-factor Borello test for employment considers: (a) whether the one performing services is engaged in a distinct occupation or 21 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 22 supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work 23 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) 24 whether or 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- 25 employee. S. G. Borello & Sons, Inc. v. Dep’t of Indus. Rels., 48 Cal. 3d 341, 351, 769 P.2d 399, 404 (1989). 26 4 The business-to-business exception is found in California Labor Code section 2776. It provides 27 that Borello, rather than the ABC test, applies to classification claims where all twelve statutory 1 intend to preclude workers from bringing misclassification claims in such situations. Rather, in 2 cases where a plaintiff asserts misclassification but contracted with the putative employer as a 3 corporate entity, the B2B exception addresses whether there was a legitimate business-to-business 4 relationship, such that Borello applies to determine employment liability, or instead whether the 5 incorporation was aimed at preventing the classification of workers as employees, such that the 6 ABC test5 applies. If the exception applies—which is plausible, given the current record—then 7 the Borello test applies to determine the defendants’ liability. That is exactly what the defendants 8 sought on appeal and so this analysis is what the Ninth Circuit instructed me to address. 9 To the extent that the defendants argue that the ABC test does not apply to joint 10 employment claims, the cases that reached this conclusion cited the policy reasons for applying 11 the ABC test and reasoned that they do not apply in the joint employment context. But one of 12 those policy reasons is to ensure that an entity does not structure its business solely to misclassify 13 workers and avoid liability under the employment laws, which does apply in this case given the 14 plaintiffs’ allegations. And to determine whether the defendants’ business structure and 15 classification decisions were designed to avoid such liability, or whether they represented 16 legitimate business-to-business relationships, California law applies the B2B exception. 17 Accordingly, there is no law that precludes the plaintiffs from bringing these claims as 18 ones for misclassification, or that requires them to bring them as joint employment claims. And 19 all of the defendants’ arguments are encompassed by the B2B exception. They may present their 20 arguments about the exception to the jury; their motion for summary judgment is denied. 21 II. RELEVANT LAW 22 In Martinez v. Combs, 49 Cal. 4th 35, 42-43, 231 P.3d 259, 262-63 (2010), as modified 23 5 The ABC test provides: 24 A worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from 25 the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that 26 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 27 established trade, occupation, or business of the same nature as the work performed 1 (June 9, 2010), the plaintiffs were agricultural workers directly employed by a strawberry grower, 2 and they alleged that they were not paid minimum wage or overtime as required by state law. For 3 recovery, they sued both the strawberry grower and several produce merchants that regularly 4 purchased the grower’s goods, arguing that they were jointly employed by the merchants who 5 were therefore liable for their unpaid wages and damages. See id. at 263-67. To determine 6 whether the merchants employed the plaintiffs, the California Supreme Court analyzed the 7 definition of “employ.” See id. at 273-78. It held that “employ” had “three alternative definitions: 8 It means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or 9 permit to work, or (c) to engage, thereby creating a common law employment relationship.” Id. at 10 278. The court reasoned that because the grower rather than the merchants exclusively controlled 11 firing, setting wages and hours, and directing where and when to report, the merchants did not 12 have the power to prevent the plaintiffs from working and so did not suffer or permit them to work 13 or employ them jointly. Id. at 282. 14 Then in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903, 416 P.3d 1, 7-8, 15 25-26 (2018), the California Supreme Court addressed whether “the wage order definitions of 16 ‘employ’ and ‘employer’ discussed in Martinez are applicable to the question of whether a worker 17 is properly considered an employee or an independent contractor for purposes of the obligations 18 imposed by an applicable wage order.” The court rejected the defendants’ argument that only the 19 third Martinez definition governed misclassification claims, holding instead that the “suffer or 20 permit” definition applied. See id. at 7. But it addressed the defendants’ concern that, when read 21 literally and without historical context, “suffer or permit” could “encompass within the employee 22 category the type of individual workers, like independent plumbers or electricians, who have 23 traditionally been viewed as genuine independent contractors who are working only in their own 24 independent business.” Id. at 8, 30, 32-33. To avoid that outcome, the Dynamex court looked to 25 how other entities such as courts, states, and agencies defined “suffer or permit.” See id. at 32-34. 26 The court noted that multi-factor tests like Borello had benefits but also “significant 27 disadvantages” for classifying workers as employees or independent contractors, including (1) 1 businesses and workers “in the dark with respect to basic questions relating to wages and working 2 conditions”; and (2) creating “greater opportunity” for businesses to structure their entities in such 3 a way as to intentionally evade their “fundamental responsibilities” under wage and hour law. Id. 4 at 33-34. Given those drawbacks, the court determined that the ABC test would be more 5 appropriate and consistent with the history and purpose of the “suffer or permit” definition of 6 “employ.” Id. at 35. 7 Subsequently, two California appellate courts determined that the disadvantages outlined 8 in Dynamex were not present in “wage and hour claims arising under a joint employer theory of 9 liability.” Henderson v. Equilon Enters., LLC, 40 Cal. App. 5th 1111, 1128 (2019); see also 10 Curry v. Equilon Enters., LLC, 23 Cal. App. 5th 289, 314-15 (2018), as modified on denial of 11 reh’g (May 18, 2018). They reasoned that Dynamex and the ABC test were “concerned with the 12 problem of businesses misclassifying workers . . . [in order to] obtain economic advantages that 13 result from the avoidance of legal and economic obligations” imposed by state and federal 14 employment law. Henderson, 40 Cal. App. 5th at 1127-28. But in the joint employment context, 15 “the policy purpose [from the ABC test] for presuming the worker to be an employee and 16 requiring the secondary employer to disprove the worker’s status as an employee is unnecessary” 17 because the primary employer pays employment taxes and provides the worker employment 18 protections. Curry, 23 Cal. App. 5th at 313-14. Therefore, those cases reasoned, the ABC test 19 does not apply to joint employment claims. Id.at 314-15; Henderson, 40 Cal. App. 5th at 1127-28. 20 Subsequently, in Vazquez v. Jan-Pro Franchising Int'l, Inc., 986 F.3d 1106 (9th Cir. 2021), 21 and the remanded case, Roman v. Jan-Pro Franchising Int’l, Inc., 342 F.R.D. 274, 309 (N.D. Cal. 22 2022), the courts addressed workers’ employment claims against the defendant cleaning company, 23 Jan-Pro Franchising. Jan-Pro had a three-tier business model, where it filled the “top-level” or top 24 tier as the overarching company; it contracted directly with the middle tier, which were regional 25 franchisors with the exclusive right to use the Jan-Pro name in a certain geographical area and had 26 their own employees and workers; and the middle tier contracted with the bottom tier “unit 27 franchisees” who were either single workers or larger entities with their own employees, who 1 plaintiffs were owners of the unit franchisees, which were purchased from the middle tier regional 2 master franchisors. Id. at 1118. The plaintiffs’ agreements with the middle tier franchisors stated 3 that the unit franchisees were independent contractors. Id. at 1119-20. The unit franchisees sued 4 the top tier company, Jan-Pro, directly for claims arising under the wage orders. See id. at 1111- 5 12. 6 To determine whether the top tier defendants could be held liable as employers despite the 7 lack of direct contract between the parties, the district court had rejected the suffer or permit 8 definition and instead applied a combination of the Martinez standard and a separate test for 9 franchisor liability. Id. at 1121. On appeal, the Ninth Circuit noted that the district court’s order 10 was published before Dynamex altered the definition of suffer or permit, and so the district court 11 had not been able to consider that change in the law. See id. at 1121-22. The Ninth Circuit 12 remanded the case, instructing the district court to apply “all three prongs of the ABC test” to the 13 misclassification claims in the first instance. Id. at 1122. It also offered guidance for applying the 14 test, noting that “[o]ther courts have specifically examined three-tier franchise structures” like 15 those at issue in the case, and at least one concluded the top tier franchisor was an employer. Id. at 16 1122-25. The court cited a Massachusetts decision that found the “agent of misclassification” 17 could be directly liable under the ABC test, “even where it utilizes a proxy to make arrangements 18 with its employees.” Id. at 1124 (quoting Depianti v. Jan-Pro Franchising Int’l, Inc., 465 Mass. 19 607, 990 N.E.2d 1054, 1068 n.17 (2013)). The Vazquez opinion did not discuss joint employment. 20 On remand, the defendants asked the district court to apply the Martinez test for joint 21 employment rather than the ABC test, arguing that there was no evidence that the defendants were 22 the “agent[s] of misclassification.” Roman, 342 F.R.D. at 309. The district court rejected the 23 argument. Id. It stated that (1) the Ninth Circuit instructed it to apply the ABC test; (2) the “agent 24 of misclassification” test was not the law in California; and (3) even if that were the law, there was 25 evidence that the defendants were the agents of misclassification. Id. Accordingly, the district 26 court held that the ABC test, not the joint employment test, applied. Id. 27 In the Massachusetts case cited by Vazquez, the plaintiffs sued the same defendant (Jan- 1 Massachusetts high court addressed whether a defendant could be liable for misclassification 2 under the state wage laws “where there was no contract for service between the plaintiff and 3 defendant.” Id. at 1064. The court held that the lack of contract by itself did not preclude liability 4 under the law. Id. at 1064-65. It reasoned that holding otherwise would mean that a putative 5 employer could impose a contractual structure intentionally to avoid liability under the wage 6 statute, contravening the purpose of and obligations imposed by the statute and allowing an “end 7 run” about it. Id. at 1068-69. 8 Indeed, courts in California regularly look to Massachusetts cases that apply the ABC test 9 and similar employment law protections. See Dynamex, 416 P.3d at 34 n.23 (modeling 10 California’s ABC test on Massachusetts’ ABC test); Vazquez, 986 F.3d at 1122-23 (“California 11 incorporated Massachusetts’s employment classification statute into its labor laws” and “Dynamex 12 favorably cited two Massachusetts decisions . . .”); Ortolivo v. Precision Dynamics Int’l, LLC, No. 13 22-CV-01812-JSW, 2023 WL 7440249, at *7 (N.D. Cal. Nov. 9, 2023) (“Because the California 14 Supreme Court adopted a version of the ABC test that tracks Massachusetts’ version of the test, 15 case law interpreting Massachusetts law is persuasive.” (citation omitted)).6 As relevant here, the 16 Massachusetts district court in Cook v. Estes Express Lines, Corp., noted that under Massachusetts 17 law, the ABC test applied only to “individuals who have been misclassified as independent 18 contractors—not companies.” No. 1:16-CV-11538-RGS, 2018 WL 1773742, at *1 (D. Mass. Apr. 19 12, 2018) (citation omitted). The plaintiff was an individual with an LLC that “provided last-mile 20 delivery services” for the defendant-putative employer. Id. He “entered into an Independent 21 Contractor Operating Agreement” with the defendant using the name of the LLC and he 22 incorporated about two and a half years later. Id. Within about six months of the initial contract, 23 the plaintiff added two more trucks and drivers, and about a year later he expanded operations to 24 eight trucks, reaching a peak of thirteen trucks in four states and employing over 20 drivers. Id. at 25 *1-2. Though he personally performed the driving services at first, within a year he stopped 26 6 See also Vazquez, 986 F.3d at 1122 (permitting the district court “to consider authorities from 27 other jurisdictions” on remand (citation omitted)); Cal. Trucking Ass’n v. Bonta, 996 F.3d 644, 1 regularly driving so that he could “run” the LLC “and oversee and ensure daily delivery services.” 2 Id. He also engaged a payroll service, hired a bookkeeper, and paid himself the company’s profits, 3 which amount to about double what the “average” driver was paid. Id. at *2. From those facts, 4 the court determined that the plaintiff operated his own business such that he was an independent 5 contractor in a legitimate business-to-business relationship with the defendant. Id. 6 Similarly, in Debnam v. FedEx Home Delivery, the plaintiff was a delivery driver who 7 contracted with the defendant, FedEx Ground, and operated up to nine delivery routes by 8 employing at least nine drivers at any given time, totaling 60 drivers in five years. No. 10-11025- 9 GAO, 2013 WL 5434142, at *1 (D. Mass. Sept. 27, 2013). The plaintiff also filed business tax 10 returns that “disclose[d] substantial business income.” Id. The district court concluded that, under 11 Massachusetts law, the plaintiff was not an “individual” within the meaning of the Wage Act 12 because his relationship with the defendants was that of “a ‘legitimate independent contractor’ in a 13 ‘business-to-business relationship.’” Id. 14 And in DaSilva v. Border Transfer of MA, Inc., 377 F. Supp. 3d 74, 81 (D. Mass. 2019), 15 the defendant was “a property broker” that contracted with federally-authorized “motor 16 carriers”—truck drivers—to perform home deliveries for large retail stores. Id. at 81. The 17 plaintiff-motor carriers signed agreements with the defendant that stated they were independent 18 contractors and that any personnel they might use were not the defendant’s employees. Id. The 19 defendant only contracted with corporate entities, and while some drivers had previously formed 20 corporations, others formed corporate entities solely to contract with the defendant. Id. at 81-82. 21 The plaintiffs included “single driver[s]” as well as drivers that employed multiple other drivers, 22 and the class definition was limited to those who “drove personally full-time.” Id. at 82, 86. The 23 plaintiffs sued the defendants for misclassification and for violation of various employment laws, 24 and the defendants asserted that the state’s Wage Act protections did not apply because the 25 plaintiffs were corporate entities, not “individuals” covered by the statute. Id. at 86. The district 26 court found that Massachusetts law “ignore[s] a worker’s corporate form for purposes of the 27 [Massachusetts] Wage Act when incorporation aims ‘to prevent the classification of workers as 1 worker’s behest.’” Id. (citation omitted). Given the facts of that case, the court reasoned that the 2 plaintiffs were “not in legitimate business-to-business relationships” with the defendant, 3 distinguishing Cook and Debnam because in those cases the plaintiffs did “much more than” 4 personally driving the vehicles for the defendants. Id. at 87. 5 The final critical case to address here is, of course, the appeal in Bowerman. There, the 6 defendants argued that Borello applied to what they viewed as “joint employment” claims asserted 7 by the plaintiffs. Bowerman, 60 F.4th at 468, 472. The Ninth Circuit agreed that “Dynamex does 8 not apply to joint employment claims” because the ABC test was created to address concerns 9 about delaying determination of a worker’s classification and to avoid encouraging hiring entities 10 to evade legal obligations. Id. at 472-73 (citing Dynamex, 416 P.3d at 33-35). But those concerns 11 are not present in the joint employment context because “the alleged employee is already 12 considered an employee of the primary employer,” and so “is afforded legal protections due to 13 being an employee of the primary employer.” Id. (quoting Curry, 23 Cal. App. 5th at 314). The 14 court held that the claims of the sole proprietors in that case “are not joint employment claims— 15 they are employee misclassification claims, like those in Dynamex . . . [s]o Dynamex applies to 16 [their] overtime claims.” Id. at 473. “But FAS’s joint employment argument”—that “Borello 17 governs”—“would likely succeed were an actual employee of a vendor suing FAS, claiming that 18 FAS was an employer,” specifically pointing to class members that “own[ed] or operate[d] LLCs 19 or corporations, which are distinct legal entities.” Id. at 473-74 (citations omitted). The court also 20 noted that plaintiffs’ counsel “conceded at oral argument that at least some of the class members 21 are employed by entities other than FAS” and so “some of the class members’ theories of liability 22 could depend on their ability to establish that FAS was a joint employer.” Id. at 473. Finally, the 23 appellate court directed me to consider “in the first instance” the joint employment issue on 24 remand. Id. at 473-74. 25 III. THE LAW AS APPLIED TO THIS CASE 26 The cases above and the caselaw in general do not wholesale preclude the plaintiffs from 27 bringing misclassification claims on these facts, and while they support the plaintiffs’ ability to 1 holdings of many of these cases, arguing that they stand for propositions that they do not reach. 2 For example, the defendants say that the Bowerman opinion found these kinds of plaintiffs could 3 only bring claims under joint employment theories of liability—but that is not what the case held, 4 in part because no party made that argument. Rather, the Ninth Circuit addressed the defendants’ 5 argument that Borello governs all claims, noting that some of the plaintiffs appeared to be 6 employed by another entity so joint employment should be considered. Bowerman, 60 F.4th at 7 472-74. The Ninth Circuit did not hold that misclassification claims and joint employment claims 8 are mutually exclusive, nor did it hold that corporate vendor plaintiffs or former class members 9 could only hold FAS liable for wage and hour violations under joint employment theories. 10 The defendants also assert that individuals “cannot be both an independent contractor and 11 an employee with respect to the same work under the same statutory scheme,” and that a claim 12 brought against a second putative employer must be brought as a joint employment claim and 13 adjudicated under the Martinez standard. D. Mot. 26:18-22. But again, no cases say this directly; 14 the closest support in the law is the recognition that the employment tests differ for 15 misclassification and joint employment claims.7 See, e.g., Henderson, 40 Cal. App. 5th at 1125, 16 1128; Curry, 23 Cal. App. 5th at 314-15. Applying different tests to different claims is not a novel 17 concept. This does not mean the plaintiffs cannot bring misclassification claims. 18 And while Martinez defines “employ” for joint employment claims, see Medina v. Equilon 19 Enters., LLC, 68 Cal. App. 5th 868, 874 (2021) (“The controlling case on joint employment in 20 California is Martinez[].”), it does not stand for the proposition that plaintiffs must bring joint 21 employment claims when they believe a top tier or secondary employer misclassified them. 22 (Indeed, misclassification was not an issue and was not addressed in that case.). The case also 23 came before Dynamex and its progeny, as well as California’s statutory B2B exception, and so did 24 not have the opportunity to address those developments or the nuanced issues that are posed here. 25 Dynamex, too, did not hold that plaintiffs can or cannot bring claims for misclassification where 26 7 There are also close similarities between the tests: for example, the Martinez joint employment 27 standard incorporates a version of the control test as well as the common law definition of 1 there is a middle tier entity that may employ the plaintiffs. Cf. D. Repl. 6:21-24 (asserting that 2 Martinez and Dynamex create “binary . . . legal standards”); id. 7:18-22 (“The settled case law . . . 3 necessarily establishes a binary analysis.”). Dynamex did emphasize—as was repeated by Curry 4 and Henderson and is echoed by the Massachusetts line of cases—that one of the guiding 5 principles in applying employment laws is ensuring that putative employers do not escape liability 6 simply by structuring their business solely to avoid liability under employment laws. 7 The plaintiffs, for their part, say that Vazquez, Roman, and the Massachusetts cases show 8 that these kinds of claims can and should be brought under misclassification theories, but those 9 holdings are somewhat more nuanced given their underlying facts. For example, Vazquez and 10 Roman involved similar factual patterns as this case but differed in that the plaintiffs were 11 classified as independent contractors by the middle tier entity. Here, at least according to the 12 defendants, the plaintiffs were classified by the middle tier corporate entities as employees, which 13 makes these plaintiffs’ argument that they were “misclassified” somewhat distinct. And though 14 these plaintiffs say that the Roman court found that misclassification claims can be brought against 15 a secondary employer who is “the agent of misclassification,” P. Oppo. 15:10-14, that case 16 specifically held that was not the law, Roman, 342 F.R.D. at 309 (“[N]either our court of appeals 17 nor Dynamex required that the hirer be the ‘agent of misclassification’ before the ABC test can 18 apply.”). 19 What the plaintiffs’ cases do stand for is the concept that putative employers cannot avoid 20 liability by intentionally structuring their business or relationships with other entities to avoid 21 providing the legal protections afforded to workers. See Dynamex, 416 P.3d at 34 (reasoning that 22 multifactor employment tests give employers “greater opportunity” to intentionally structure their 23 business to evade wage and hour liabilities); Bowerman, 60 F.4th at 473 (echoing that a concern of 24 multifactor tests is “afford[ing] a hiring business greater opportunity to evade its fundamental 25 responsibilities under a wage and hour law” (quoting Dynamex, 416 P.3d at 33-35)); Roman, 342 26 F.R.D. at 309 (citing Massachusetts law and stating that implementing a contractual framework to 27 evade wage and hour obligations “would amount to an ‘end run’ around the top tier’s wage law 1 employers should not be able to intentionally structure their business to create an “end run” around 2 the Massachusetts Wage Act protections); DaSilva, 377 F. Supp. 3d at 86-87 (same); see also 3 Jinks v. Credico (USA) LLC, 488 Mass. 691, 697-98, 177 N.E.3d 509, 516-17 (2021) (collecting 4 cases describing the same). In emphasizing this principle, these cases affirm that the policy 5 reasons for the added protections of the ABC test are not present when there is a “legitimate” 6 “business-to-business relationship” between the plaintiff and defendant. See Dynamex, 416 P.3d 7 at 33-34; Henderson, 40 Cal. App. 5th at 1127-28; Curry, 23 Cal. App. 5th at 313-15; Cook, 2018 8 WL 1773742, at *2; Debnam, 2013 WL 5434142, at *1. 9 Here, the plaintiffs say that the defendants forced them to incorporate to intentionally avoid 10 wage and hour liability. P. Oppo. 17:4-19:27. The defendants dispute that incorporation was 11 required,8 but the plaintiffs point to enough evidence to create a material dispute of fact, see, e.g., 12 [Dkt No. 652-5] Ex. 50 (Cohick declaring that FAS “required” him to have a business to contract, 13 yet issued him 1099s “in my name and with my personal tax identification number rather than 14 issue the form 1099s to Monster Mower’s corporate tax identification number”); [Dkt No. 652-4] 15 Ex. 33 at -366, -375 (requiring a “company name” to sign various parts of Vendor Qualification 16 Packet). And, if the plaintiffs’ version of the events is correct, the policy reasons for applying the 17 ABC test to misclassification claims—preventing employers from structuring businesses to avoid 18 wage and hour liability—would be directly applicable. That means the plaintiffs can bring these 19 claims as misclassification claims. 20 But as these cases also emphasize, the protections of the ABC test do not apply where the 21 plaintiffs have “legitimate” business-to-business relationships with the putative employers. See 22 Dynamex, 416 P.3d at 33-34; Henderson, 40 Cal. App. 5th at 1127-28; Curry, 23 Cal. App. 5th at 23 313-15; Cook, 2018 WL 1773742, at *2; Debnam, 2013 WL 5434142, at *1. That means that 24 while the plaintiffs can bring these claims, their success will depend on whether their corporate 25 entities were in legitimate business-to-business relationships with the defendants. And in 26 27 8 Pointing out the plaintiffs were allowed to “leave Business Name . . . blank” is not the same as 1 California, to determine whether those relationships existed, courts look to the statutory B2B 2 exception. See Cal. Lab. Code § 2776. Indeed, this reasoning echoes the plaintiffs’ argument at 3 the hearing: the very existence of the B2B exception shows that state law has contemplated 4 bringing misclassification claims on these kinds of facts. Whether they succeed depends on 5 whether the twelve B2B criteria are met. 6 The B2B exception is therefore the proper vehicle for the defendants’ arguments about 7 these claims. This is reinforced in part by the exception itself: if all twelve criteria are met, the 8 Borello test applies, see id., which is what the defendants argued for at the Ninth Circuit, and so is 9 within the scope of what the Ninth Circuit contemplated when remanding for me to consider the 10 “joint employment” issue. This outcome is also reinforced by the substance of the defendants’ 11 arguments, many of which align with the twelve B2B criteria. For example, the defendants point 12 to evidence that the plaintiffs employed other workers and were paid high salaries, which affect 13 whether they were in legitimate B2B relationships and may go to the “providing services directly” 14 and “customarily engaged” factors discussed at length in the Prior Order, among others. Cal. Lab. 15 Code § 2776(a)(2),(6); see also Cook, 2018 WL 1773742, at *2 (holding the plaintiff was in a 16 legitimate business-to-business relationship with the putative employer where he employed over 17 20 workers, paid himself twice the salary of his workers, and carried out administrative business 18 tasks rather than “personal[ly]” doing the work for the defendant); Debman, 2013 WL 5434142, at 19 *1 (similar).9 Many of their other arguments, including that the plaintiffs were paid overtime or 20 were reimbursed by their corporate entities, go to credibility and damages. See also D. Supp. Br. 21 2:10-20. 22 Accordingly, the defendants’ argument that these claims must be brought as joint 23 employment claims is not grounded in the law and is DENIED as a basis for summary judgment. 24 25 9 Compare Cohick’s deposition testimony: for example, he said his corporation, Monster Mowers, started as a sole proprietorship. [Dkt. No. 656 Ex. I] 21:22-22:3, 46:6-47:3, 57:2-19. After 26 incorporation, he “had W-2 employees,” including at least one solely for administrative tasks, and over the course of the corporation’s existence there were at least 50 employees total. Id. 52:17-25, 27 57:2-19, 60:10-12, 69:1-12. He hired them and decided what to pay them, which was usually 1 Their related argument that these claims must be dismissed because they were not pleaded as joint 2 || employment claims is also DENIED. The defendants may present to the jury their arguments that 3 || the plaintiffs’ corporate entities were in legitimate business-to-business relationships with FAS so 4 || that Borello applies, and they may argue to the jury that they did not employ the plaintiffs under 5 the Borello standard. To the extent that my Prior Order provided otherwise, it is hereby 6 || AMENDED. These questions will go to the jury. 7 CONCLUSION" 8 For those reasons, the remainder of the defendants’ motion is DENIED. 9 IT IS SO ORDERED. 10 || Dated: January 29, 2024 Q2 ° William H. Orrick 13 United States District Judge 15 16 = 17 Z 18 19 20 21 22 23 24 25 26 27 10 The requests for judicial notice of two lawsuits filed against Cohick’s corporation, [Dkt. No. 2g || 654] are DENIED as irrelevant. A third party’s choice to include or not include parties in a lawsuit is not relevant to Cohick’s business relationship with the defendants.