Parada v. East Coast Transport CA2/2 ( 2021 )

Filed 3/26/21 Parada v. East Coast Transport CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
ERICK V. PARADA et al., B296566
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC681293)
v.
EAST COAST TRANSPORT, INC.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los
Angeles County. William H. Fahey, Judge. Reversed and
remanded with directions.
Gomez Law Group and Alvin M. Gomez for Plaintiffs and
Appellants.
Vanderford & Ruiz, Todd A. Picker and Zeeshan Kabani for
Defendant and Respondent.
_________________________________
Erick V. Parada, Felipe Alfonso Sergio Alonso Reyes, Jose
Antonio Alfaro, and Rony Manual Arana (Appellants) appeal
from a judgment against them following a court trial. Appellants
are truck owner/operators who performed work as putative
independent contractors for respondent East Coast Transport,
Inc. (East Coast). East Coast is a drayage company that
arranges for the pick-up and delivery of goods from Los Angeles
area ports to nearby locations. Appellants sued East Coast,
claiming that they were actually employees rather than
independent contractors and were therefore wrongfully deprived
of statutory protections and benefits given to employees, such as
provisions for rest breaks and meal periods, reimbursement of
expenses, and itemized wage statements.
Following the first portion of a bifurcated trial on
Appellants’ claim under the Unfair Competition Law (UCL; Bus.
& Prof. Code, § 17200), the trial court ruled that Appellants were
independent contractors rather than employees. The court
concluded that this finding disposed of each of Appellants’ claims
and entered judgment accordingly.
In finding that Appellants were independent contractors,
the trial court ruled that our Supreme Court’s decision in
Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th
903 (Dynamex) did not apply retroactively. Dynamex held that a
three-factor test (the so-called “ABC” test) should be used to
determine if a worker qualifies as an independent contractor for
purposes of California’s wage orders (which establish many
entitlements for employees). (Id. at pp. 916–917.) One of the
requirements of that test is that an independent contractor must
perform work that is outside the usual course of the hiring
entity’s business. Instead of the Dynamex test, the trial court
2
applied the multi-factor definition of an independent contractor
described in S. G. Borello & Sons, Inc. v. Department of
Industrial Relations (1989) 48 Cal.3d 341 (Borello).
Since the trial court’s ruling, our Supreme Court has
decided that Dynamex should be applied retroactively. In
Vazquez v. Jan-Pro Franchising International (2021) 10 Cal.5th
944 (Vazquez), the court reached that conclusion primarily
because Dynamex “addressed an issue of first impression” and did
not change a settled rule on which the parties had relied.
(Vazquez, at p. 948.)
Our Supreme Court’s decision in Vazquez controls here.
The judgment therefore may not be affirmed on the legal ground
that the trial court adopted.
East Coast also argues as an alternative ground for
affirmance that federal law preempts the ABC test as applied to
its business. In People v. Superior Court (Cal Cartage
Transportation Express, LLC) (2020) 57 Cal.App.5th 619 (Cal
Cartage), Division Four of this appellate district recently rejected
an identical argument. We agree with the decision in that case
and conclude that federal law does not preclude application of the
ABC test here.
Because the judgment was based on an incorrect legal
standard, we reverse it and remand the case for further
proceedings on Appellants’ complaint.
BACKGROUND
1. The Parties
As a drayage company, East Coast handles the
transportation of shipping containers to and from ports in the Los
Angeles area. East Coast hires commercial truck drivers such as
Appellants for this task. Before working for East Coast,
3
Appellants had all worked as drivers for other trucking
companies.
Each Appellant signed an Independent Contractor
Agreement provided by East Coast. Under that agreement,
Appellants acknowledged that they were independent “ ‘owner-
operators’ ” and not employees. They agreed to provide their own
trucks and to supply their own labor to load and unload the
trucks. They had the option to accept or reject loads offered by
East Coast and were permitted to accept work from other
trucking companies.
Appellants in fact owned their own trucks, which they
purchased from a company owned by Jose Serrano, a co-owner of
East Coast. Appellants paid for the trucks through deductions
from their weekly paychecks.
As owner-operators, Appellants made more money than
employees. East Coast also compensated them for their driving
distance, fuel, and expenses.
2. Proceedings in the Trial Court
Appellants sued East Coast in October 2017. The crux of
their complaint was that East Coast willfully misclassified
Appellants as independent contractors rather than employees to
avoid the legal requirements associated with employee status.
The complaint alleged nine causes of action, including
claims under the Labor Code for alleged failure to pay wages
when due; failure to pay minimum wages; failure to provide
mandated rest periods and meal breaks; and failure to furnish
timely and accurate wage statements.
A number of Appellants’ Labor Code claims were based on
Industrial Welfare Commission Wage Order No. 9-2001 (Wage
Order No. 9), which establishes requirements for minimum
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wages, overtime rates, and meal and rest periods for employees
in the transportation industry. (See Cal. Code Regs., tit. 8,
§ 11090.) The complaint also included a cause of action under the
UCL alleging that East Coast unfairly evaded classification of its
drivers as employees and engaged in unlawful conduct by
committing the alleged Labor Code violations.
In pretrial proceedings, the trial court ruled that Dynamex
did not apply to Appellants’ claims. The court reasoned that:
(1) Dynamex “was decided after all of the events at issue in this
case took place and after the complaint was filed”; (2) the opinion
in Dynamex applied existing law to the parties in that case and
was “notably silent” as to whether the ABC test should be applied
retroactively; and (3) applying a new legal standard in the form of
the ABC test to a “decades old and industry-wide business model”
would violate due process.
The trial court ordered a bifurcated trial, with Appellants’
UCL claim to be tried first to the court. At the conclusion of the
first phase of trial, the trial court issued a statement of decision
finding in favor of East Coast.
Applying the Borello standard, the trial court found that
East Coast had met its burden to show that Appellants were
independent contractors rather than employees. The court found
that East Coast exercised only limited control over Appellants’
work and did not supervise them; Appellants were skilled drivers
who owned their own vehicles and were paid by the job; the
independent contractor agreements between East Coast and
Appellants were short-term and easily canceled; and Appellants
and East Coast “firmly believed that their relationship was not
that of an ‘employer-employee.’ ”
5
The trial court therefore found in favor of East Coast on
Appellants’ UCL claim. Based upon its finding that Appellants
were independent contractors rather than employees, the court
also concluded that Appellants’ remaining claims were
“untenable as a matter of law” and entered judgment in favor of
East Coast.
DISCUSSION
1. Our Supreme Court’s Decision in Dynamex
Applies Retroactively
In Dynamex, our Supreme Court considered the standard
that should be applied when deciding whether a worker is an
employee or an independent contractor for purposes of California
wage orders. (Dynamex, supra, 4 Cal.5th at pp. 913–914.) Such
wage orders “impose obligations relating to 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.” (Ibid.)
The plaintiffs in Dynamex sought to certify a class of
drivers for a nationwide package and document delivery company
(Dynamex). (See Dynamex, supra, 4 Cal.5th at pp. 914–915.)
The drivers alleged that Dynamex had misclassified its delivery
drivers as independent contractors rather than employees.
(Ibid.) Like Appellants here, the drivers in Dynamex sought
relief under Business and Professions Code section 17200 for
Dynamex’s alleged violations of the relevant wage order and of
various sections of the Labor Code. (Ibid.)
As in this case, in Dynamex the applicable wage order was
Wage Order No. 9. (Dynamex, supra, 4 Cal.5th at pp. 914, 925.)
That wage order defines “ ‘employ’ ” as “ ‘to engage, suffer or
permit to work.’ ” (Id. at p. 926.) After considering the historical
6
origins of the “suffer or permit to work” language and the
remedial purpose of wage orders, the court concluded that “the
suffer or permit to work standard must be interpreted and
applied broadly to include within the covered ‘employee’ category
all individual workers who can reasonably be viewed as ‘working
in [the hiring entity’s] business.’ ” (Dynamex, 4 Cal.5th at p. 953,
quoting Martinez v. Combs (2010) 49 Cal.4th 35, 69.) The court
also considered the disadvantages of a multifactor test, such as
the one applied in the context of workers’ compensation under
Borello, and concluded that the comparatively simple ABC test
was preferable for California wage orders. (Dynamex, at pp. 929,
954–957.)
The ABC test contains three requirements. To show that a
worker is an independent contractor, an employer has the burden
to prove “(A) that the worker 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; 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
the work performed.” (Dynamex, supra, 4 Cal.5th at p. 957.)
In Vazquez, the court subsequently held that its decision in
Dynamex applies retroactively to all cases that were not yet final
at the time of that decision.1 (Vazquez, supra, 10 Cal.5th at
1Our Supreme Court considered the issue in the context of
answering a certified question from the Ninth Circuit Court of
Appeals concerning the retroactivity of Dynamex. (See Vazquez
v. Jan-Pro Franchising Int’l, Inc. (2021) 986 F.3d 1106, 1116–
1117 (Vazquez II).)
7
p. 948.) Vazquez relied on the general rule that “ ‘judicial
decisions are to be applied retroactively.’ ” (Vazquez, supra, 10
Cal.5th at p. 951, quoting Waller v. Truck Ins. Exchange, Inc.
(1995) 11 Cal.4th 1, 24.) The court concluded that no exceptions
to that rule applied. The court explained that Dynamex decided
an issue of first impression, and that “the ABC test articulated in
Dynamex was within the scope of what employers reasonably
could have foreseen.” (Vazquez, at pp. 953, 955–956.)
Importantly, the court in Vazquez considered, and rejected,
the same fairness arguments that East Coast makes here. East
Coast argues that it reasonably relied on the Borello standard
and that it could not have anticipated that the ABC standard
would govern the status of its drivers. The court in Vazquez
reasoned that such arguments carried “little weight when, as
here, the underlying decision changes no settled rule.” (Vazquez,
supra, 10 Cal.5th at p. 949.) The court also explained that
“public policy and fairness concerns, such as protecting workers
and benefitting businesses that comply with the wage order
obligations, favor retroactive application of Dynamex.” (Ibid.)
East Coast also argues that applying the ABC standard
here would violate its due process rights. The court’s decision in
Vazquez forecloses that argument. The court expressly rejected
the proposition that “reliance or fairness considerations”
precluded retroactive application of Dynamex under due process
principles. (Vazquez, supra, 10 Cal.5th at p. 957, fn. 4.)
Thus, under Vazquez, it is clear that the Dynamex standard
applies to this case. The trial court’s decision that Dynamex
8
should not be applied retroactively to this case must therefore be
reversed.2
2. Federal Law Does Not Preempt Application of
the ABC Test to Motor Carriers
In a brief alternative argument in support of affirmance,
East Coast claims that the Federal Aviation Administration
Authorization Act (FAAAA; Pub.L. No. 103-305 (Aug. 23, 1994)
2 The decision in Dynamex applied only to the definition of
“employ” for purposes of wage orders and did not reach the
question of whether the ABC test should apply to claims under
the Labor Code. (See Dynamex, supra, 4 Cal.5th at pp. 916, fn. 5,
942.) In 2020, the Legislature subsequently adopted the
Dynamex test for purposes of the entire Labor Code. (Lab. Code,
§ 2775; see Cal Cartage, supra, 57 Cal.App.5th at pp. 626–627.)
After the decision in Dynamex, but before the legislative change,
several Courts of Appeal decided that the Borello standard rather
than the ABC test should apply to claims under the Labor Code
that are not based upon wage order violations. (See Gonzales v.
San Gabriel Transit, Inc. (2019) 40 Cal.App.5th 1131, 1157,
review granted Jan. 15, 2020, S259027 [“the ABC test applies to
Labor Code claims which are either rooted in one or more wage
orders, or predicated on conduct alleged to have violated a wage
order,” but the Borello test applies to other Labor Code claims];
Garcia v. Border Transportation Group, LLC (2018) 28
Cal.App.5th 558, 571 [Borello provides the proper standard for
non-wage-order claims].) East Coast does not argue that the
Borello test applies to any of Appellants’ claims under these
decisions. We therefore do not consider whether any of
Appellants’ claims fall outside the scope of the Dynamex decision
under prior law.
9
108 Stat. 1569) preempts any state rule that applies the ABC test
to motor carriers.3 We disagree.
Under the FAAAA, a “State, political subdivision of a State,
or political authority of 2 or more States may not enact or enforce
a law, regulation, or other provision having the force and effect of
law related to a price, route, or service of any motor carrier.” (49
U.S.C. § 14501(c)(1); see People ex rel. Harris v. Pac Anchor
Transportation, Inc. (2014) 59 Cal.4th 772, 775 (Pac Anchor).)
East Coast argues that, at least as interpreted by Appellants, the
ABC test would interfere with the FAAAA’s objectives by
compelling a motor carrier such as East Coast to use employees
rather than independent contractors to perform the services that
it provides.
The court in Cal Cartage rejected an identical argument.
In that case, Division Four of this appellate district concluded
that the ABC test is a law of general application that “does not
mandate the use of employees for any business or hiring entity.”
(Cal Cartage, supra, 57 Cal.App.5th at p. 631.) Accordingly, the
court held that the FAAAA did not preclude applying the ABC
test to a UCL claim by the Los Angeles City Attorney alleging
3 Appellants object to this argument on the ground that
East Coast did not raise it below. We have discretion to consider
an issue of law raised for the first time on appeal if the issue does
not depend upon disputed facts. (Frink v. Prod (1982) 31 Cal.3d
166, 170; Sheller v. Superior Court (2008) 158 Cal.App.4th 1697,
1709.) East Coast’s preemption argument raises a legal issue
that may be resolved without regard to the specific facts of this
case. (See Cal Cartage, supra, 57 Cal.App.5th at p. 629.)
Moreover, the trial court would likely need to consider the
argument on remand if we do not address it now. So we exercise
our discretion to consider the issue.
10
that various trucking companies had misclassified their owner-
operators as independent contractors. (Id. at pp. 624–625, 634.)
The court in Cal Cartage relied upon our Supreme Court’s
decision in Pac Anchor. (See Cal Cartage, supra, 57 Cal.App.5th
at pp. 630–631.) In Pac Anchor, the court similarly concluded
that the FAAAA did not preempt a UCL claim brought by the
State of California alleging that trucking companies had
misclassified drivers as independent contractors.
The court in Pac Anchor first rejected the argument that
the FAAAA preempts all UCL claims against motor carriers
because such claims “regulate the effect that unfair business
practices have on the quality and price of goods and services.”
(Pac Anchor, supra, 59 Cal.4th at pp. 782–784.) The court
explained that the UCL is a broad law of general application that
does not mention motor carriers specifically. (Id. at p. 783.) The
court concluded that a “UCL action that is based on an alleged
general violation of labor and employment laws does not
implicate” the concerns about the “regulation of motor carriers
with respect to the transportation of property” that underlie the
FAAAA. (Ibid.)
The court in Pac Anchor also held that the FAAAA did not
preempt the UCL as applied in that action. In that case, the
state had alleged a single cause of action under the UCL
“premised on violations of the Unemployment Insurance Code,
the Labor Code, and IWC Wage Order No. 9.” (Pac Anchor,
supra, 59 Cal.4th at p. 784.) The court concluded that the
provisions of law underlying the state’s UCL claim did not relate
to motor carrier prices, routes, or services. Rather, they were
laws of general application applicable to all employers that fell
outside the scope of provisions that the FAAAA preempts under
11
controlling United States Supreme Court precedent. (Id. at pp.
784–785, citing Morales v. Trans World Airlines, Inc. (1992) 504
U.S. 374, 388.)
Of particular importance here, the court in Pac Anchor also
rejected the argument that the UCL claim in that case would
significantly affect motor carrier prices, routes, and services
because its application would prevent motor carriers from using
independent contractors. (Pac Anchor, supra, 59 Cal.4th at
p. 785.) The court agreed with the defendants that the state
“may not prevent them from using independent contractors.”
(Ibid.) However, the court decided that the state’s UCL claim
would not have that effect. The court explained that “[t]he
People merely contend that if defendants pay individuals to drive
their trucks, they must classify these drivers appropriately and
comply with generally applicable labor and employment laws.”
(Ibid.) The court concluded that “Defendants are free to use
independent contractors as long as they are properly classified.”
(Id. at p. 787.)
Our Supreme Court’s decision in Pac Anchor preceded its
opinion in Dynamex. However, as explained above, Dynamex did
not change the law, but simply interpreted the language “suffer
or permit to work” in Wage Order No. 9 in a manner that
employers “reasonably could have foreseen.” (See Vazquez,
supra, 10 Cal.5th at pp. 955–956.) Thus, there is no reason to
believe that Dynamex had any effect on the court’s conclusion in
Pac Anchor that the state may permissibly apply its general
employee classification rules to motor carriers.
We therefore agree with the conclusion of Division Four in
Cal Cartage that Pac Anchor is “dispositive” on the question
whether the FAAAA preempts a claim against a motor carrier
12
seeking to enforce the ABC test. (See Cal Cartage, supra, 57
Cal.App.5th at p. 631.) Like the labor laws at issue in Pac
Anchor, including Wage Order No. 9, “the ABC test is a law of
general application” that “does not mandate the use of employees
for any business or hiring entity.” (Cal Cartage, at p. 631.)4
3. The Trial Court Should Consider in the First
Instance Whether Appellants Were
Misclassified as Independent Contractors
Under the ABC Test.
Appellants argue that, under the facts presented at trial,
East Coast could not meet its burden to establish that Appellants
were independent contractors under the ABC test because East
Coast is “in the trucking business and Appellants performed
truck driving services for it.” Thus, East Coast could not show
that Appellants performed work that is “outside the course of the
hiring entity’s business” under prong “B” of the ABC test.
(Dynamex, supra, 4 Cal.5th at p. 957.) Appellants therefore
4 The court in Cal Cartage also noted that the statutory
scheme that the Legislature enacted in 2020 clearly does not
prohibit motor carriers from using independent contractors
because it establishes a “business-to-business” exception to the
ABC test in Labor Code section 2776. (See Cal Cartage, supra,
57 Cal.App.5th at pp. 632–634.) Section 2776 first became
effective in September 2020. We therefore presume, without
deciding, that this provision would not apply to the claims in this
case. However, that fact does not change our analysis. Our
Supreme Court did not rely upon the current statutory scheme in
Pac Anchor, and, as the court in Cal Cartage persuasively
explained, that decision is dispositive here. (See Cal Cartage, at
p. 631.)
13
request that we decide this issue as a matter of law rather than
remanding to the trial court to consider it.
We agree that, based on the trial record, it appears unlikely
that East Coast will be able to meet its burden under the ABC
test. As Appellants point out, the testimony at trial showed that
East Coast is a trucking company that must have truck drivers to
operate.
The trial court also made comments during argument
indicating that the court shared this view. The trial court stated
to East Coast’s counsel that, “[u]nder Dynamex, you lose right off
the bat because it’s the same—your trucking company and your
employee truckers; right? . . . Trucking was your client’s
business.”
However, the trial took place under the assumption that
the Borello test, not the Dynamex test, governed whether
Appellants were independent contractors. The trial court’s
comments concerning the effect of the ABC test were therefore
hypothetical. And the issue is of course highly factual.5
East Coast argues that determining the Appellants’ status
under the ABC test “raises a host of procedural and substantive
issues, e.g., new defenses, that were not litigated below.” It
5 As Appellants point out, courts in other jurisdictions have
considered different factors to determine whether work was
“outside the course of the hiring entity’s business,” including
“whether the work of the employee is necessary to or merely
incidental to that of the hiring entity, whether the work of the
employee is continuously performed for the hiring entity, and
what business the hiring entity proclaims to be in.” (See
Vazquez II, supra, 986 F.3d at p. 1125.)
14
claims that it would therefore be unfair for this court to grant
what amounts to a “summary judgment” on the issue.6
Regardless of our decision on this issue, remand will be
necessary. The trial court would need to consider appropriate
relief on Appellants’ UCL claim even if we were to hold as a
matter of law that Appellants were employees under the ABC
test. And Appellants’ Labor Code claims have yet to be tried.
Because the issue is highly factual; the trial took place
under the assumption that the Borello test applied; and remand
is necessary anyway, we conclude that the best course is to
permit the trial court to consider in the first instance whether
Appellants were independent contractors under the ABC test.
(See Vazquez II, supra, 986 F.3d at p. 1122 [remanding for the
district court to consider whether the plaintiffs were employees
under the Dynamex standard “[g]iven the fact-intensive nature of
the Dynamex inquiry”].) We will therefore remand for that
purpose and for further proceedings on Appellants’ claims.
6 Citing decisions from other jurisdictions, East Coast
argues that one such defense may be based on a showing that
Appellants’ work was outside the “usual course” of East Coast’s
business because Appellants performed the work outside of East
Coast’s place of business. The decision in Dynamex forecloses
that specific argument. (See Dynamex, supra, 4 Cal.5th at p. 956,
fn. 23.)
15
DISPOSITION
The judgment is reversed and the case is remanded for
further proceedings on Appellants’ complaint. Appellants are
entitled to their costs on appeal.
NOT TO BE PUBLISHED.
LUI, P. J.
We concur:
CHAVEZ, J.
HOFFSTADT, J.
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