Filed 3/18/21

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

VENDOR SURVEILLANCE 

CORPORATION,

Plaintiff and Appellant,

v.

PATRICK W. HENNING, JR., as 

Director, etc., et al.,

Defendants and Respondents.

 D076079

 (Super. Ct. No. 37-2016-00037096-

 CU-MC-CTL)

APPEAL from a judgment of the Superior Court of San Diego County, 

Timothy B. Taylor, Judge. Affirmed. Request for judicial notice granted in 

part and denied in part.

Ogletree, Deakins, Nash, Smoak & Stewart, Jack S. Sholkoff and 

Tracie Childs for Plaintiff and Appellant.

Xavier Becerra, Attorney General, Lisa W. Chao, Assistant Attorney 

General, Brian D. Wesley, Tim Nader and Anna Barsegyan, Deputy 

Attorneys General, for Defendants and Respondents.

Vendor Surveillance Corporation (VSC) appeals from an adverse

judgment in its action seeking refund of $278,692 in unemployment 

insurance taxes assessed by the California Employment Development 
2

Department (EDD). The outcome turns on whether project specialists hired 

by VSC between January 1, 2011 and December 31, 2013 (the audit years) 

are classified as employees or independent contractors. The first-impression 

legal issue is whether in making that determination, the court should apply 

(1) the ABC test announced in Dynamex Operations W. v. Superior Court 

(2018) 4 Cal.5th 903, 956‒957 (Dynamex) and later codified in the Labor 

Code; or instead (2) the Borello factors (S.G. Borello & Sons, Inc. v. 

Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello)), codified in 

an EDD regulation, California Code of Regulations, title 22, section 4304-1 

(hereafter regulation 4304-1). 

With little case law for guidance and an eye on appeal, the trial court 

prudently analyzed the evidence alternatively under each standard and 

determined that project specialists are VSC’s employees. We hold that 

Borello provides the applicable standard in assessing unemployment 

insurance taxes during the audit years. Because the court’s findings under 

that standard are supported by substantial evidence and its qualitative 

weighing of the Borello factors was an appropriate exercise of the court’s 

discretion, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. Source Inspection

Aerospace manufacturers use component parts made by others 

(suppliers) that must be fabricated to exacting specifications. Disaster can 

ensue if a defective part escapes detection and is installed in an aircraft. To 

help ensure that such tragedies do not occur, the manufacturer inspects the 

part at the supplier’s facility. The industry calls this source inspection.
3

B. Verify, VSC, and VTR

Verify, Inc. (Verify) provides management services, including source 

inspection, to aerospace and defense manufacturers. VSC is a wholly owned

subsidiary of Verify. VSC maintains a database of persons qualified to 

perform source inspection, called project specialists. It also recruits and 

screens individuals to add to that database. During the audit years, the 

database contained more than 300 California-based project specialists.

When a Verify customer requests a source inspection, Verify negotiates

the services to be performed and the corresponding fee. If the customer 

requires part-time, project-based on demand source inspection, Verify 

subcontracts with VSC to provide a qualified project specialist. After 

identifying qualified project specialists from the database, VSC contacts each 

to determine their interest in the work. A project specialist is free to decline 

work and there are no negative repercussions for doing so. VSC submits 

resumes of interested project specialists to Verify, which forwards them to its 

customer to choose from.

VTR, Inc. is a “staffing subsidiary” of Verify. If Verify’s customer needs 

full time work (including but not limited to source inspection) in one location 

exceeding three months, Verify subcontracts with VTR to provide qualified 

personnel. 

VSC classifies its source inspectors as independent contractors; VTR 

classifies its personnel as employees.

C. The Contractual Relationship Between VSC and Project Specialists

VSC engages project specialists under an “Independent Contractor 

Agreement” (Agreement). The Agreement characterizes their relationship as 

that of independent contractor, stating:
4

“[I]t is mutually understood and agreed that Contractor is 

at all times acting and performing his/her duties and 

functions in the capacity of an independent contractor; that 

it is Contractor who enters into this Agreement; and that 

no provision in this Agreement shall imply or create an 

employer-employee relationship . . . . Further, it is 

mutually understood and agreed that VSC shall neither 

have the right to exercise, nor shall VSC exercise, direction 

or control over the detail, manner, means or method which 

Contractor or his agents and employees use in performing 

his/her duties under this Agreement . . . .”

VSC presents the Agreement on a take-it-or-leave-it basis. The only 

negotiable term is the project specialist’s hourly rate. A project specialist is 

free to accept work from VSC’s competitors; however, the Agreement 

prohibits soliciting employment from Verify’s “customer or a supplier.” VSC 

may terminate the Agreement “for cause” and also without cause on 30 days’ 

notice. 

For each project, VSC and the project specialist also agree to an 

addendum containing details of the assignment and the project specialist’s 

hourly rate. The addendum requires the project specialist to invoice time and 

expense charges, “using the prescribed forms,” which as a practical matter is 

Verify’s computer system. The addendum also requires the project specialist 

to provide VSC and the customer with an inspection report and “detailed 

narrative” using “prescribed forms.” 

D. The Legal Landscape—Empire Star Mines, Borello and Dynamex

Some legal background is helpful in placing the remaining litigation 

history in context. California has an unemployment insurance program 

providing benefits for “ ‘persons unemployed through no fault of their own, 

and to reduce involuntary unemployment and the suffering caused thereby to 

a minimum.’ ” (Air Couriers International v. Employment Development Dept.

(2007) 150 Cal.App.4th 923, 931‒932 (Air Couriers).) Tax contributions from 
5

employers fund this program. (Id. at p. 932.) However, a hirer is required to 

pay the tax only for its employees, not for independent contractors. (Ibid.)

In Empire Star Mines Co., Ltd. v. California Employment Commission 

(1946) 28 Cal.2d 33 (Empire Star Mines) the California Supreme Court held 

that in distinguishing an employee from an independent contractor for 

purposes of unemployment insurance tax, “the most important factor is the 

right to control the manner and means of accomplishing the result desired.” 

(Id. at p. 43.) “Other factors to consider” are: 

“(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 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.” 

(Empire Star Mines, at pp. 43‒44.)

In Borello, the California Supreme Court applied the Empire Star 

Mines factors in the context of worker’s compensation. As a result, they are 

now commonly known as Borello factors. (Borello, supra, 48 Cal.3d at 

pp. 350‒351.) And for many years, California courts “applied the test 

articulated in Borello, supra, 48 Cal.3d 341 to determine whether a worker is 

an employee or an independent contractor.” (Gonzales v. San Gabriel 

Transit, Inc. (2019) 40 Cal.App.5th 1131, 1151, review granted Jan. 15, 2020, 

No. S259027 (Gonzales).) Then in 2018, Dynamex addressed application of 

the Borello test in the context of a wage-and-hour lawsuit in which delivery 

drivers alleged they had been misclassified as independent contractors. On 
6

the wage order claims, the court declined to apply Borello in favor of a 

“simpler” three-part “ABC” test.1 (Dynamex, supra, 4 Cal.5th at p. 950, 

fn. 20.) “Under the ABC standard, the worker is an employee unless the 

hiring entity establishes each of three designated factors: (a) that the worker 

is free from control and direction over performance of the work, both under 

the contract and in fact; (b) that the work provided is outside the usual course 

of the business for which the work is performed; and (c) that the worker is 

customarily engaged in an independently established trade, occupation or 

business.” (Ibid.)

E. EDD Determined that VSC Misclassified Project Specialists

Having classified project specialists as independent contractors, VSC 

did not pay unemployment insurance tax on their earnings. After a project 

specialist sought unemployment insurance benefits, EDD conducted an audit

of VSC. In the audit, EDD found that with one exception, project specialists 

did not operate an established business of their own. They did not have their 

own clients, advertise, or hold themselves out as self-employed. EDD also 

found that project specialists had a “continuous” relationship with VSC. 

“They would get assignments and then get new assignments when the 

assignments were completed.” The audit further determined that source 

inspection “was an integral part” of VSC’s business. EDD concluded that 

“[w]ithout these workers, there is no business.” Based on these and related 

1 The Industrial Welfare Commission (IWC) promulgates wage orders 

“fixing for each industry minimum wages, maximum hours of work, and 

conditions of labor” “Consequently, wage and hour claims are today governed 

by two complementary and occasionally overlapping sources of authority: the 

provisions of the Labor Code, enacted by the Legislature, and a series of 18 

wage orders, adopted by the IWC.” (Brinker Restaurant Corp. v. Superior 

Court (2012) 53 Cal.4th 1004, 1026.)
7

findings, EDD determined that VSC’s project specialists are “[c]ommon [l]aw 

[e]mployees” under Unemployment Insurance Code section 621, former 

subdivision (b) (hereafter, section 621(b))2 and regulation 4304-1.

In April 2014, EDD assessed VSC $1,046,578.35 for unemployment 

insurance, state disability insurance, and personal income tax, plus 

approximately $48,000 in interest. After VSC’s administrative challenges, 

EDD reduced the assessment to $278,692.45. VSC paid the tax and filed this 

action for refund.

F. Superior Court Litigation

Although Dynamex dealt with wage orders and did not exist during the 

audit years, at trial in 2019 EDD asserted that Dynamex applied 

retroactively to unemployment insurance assessments. VSC maintained that 

Borello applied. 

Ten representative project specialists testified. On several Borello 

factors, the evidence was largely undisputed. For example, VSC paid all the 

project specialists hourly. The witnesses also agreed that source inspection 

requires highly skilled individuals. Many of the project specialists had a

longstanding relationship with VSC—some had been working for VSC 

between 20 and nearly 30 years. All the project specialists believed they 

were independent contractors. 

On other factors, however, the testimony varied and in some respects 

conflicted. For example, one project specialist operated under a corporate 

entity with its own business license. However, several others worked for VSC 

in their individual capacities. Some who created a corporate entity for VSC 

work had no other employees and no client besides VSC. 

2 Undesignated statutory references are to the Unemployment Insurance 

Code.
8

There was also a range of evidence regarding the extent of VSC’s 

supervision and control. In addition to VSC’s right to terminate without 

cause, there was evidence that a project specialist encountering a problem or 

concern on the job “could initially go to their Verify project leader who could 

coordinate help, bringing the expertise that’s required.” VSC measures a 

project specialist’s performance by the number of defective parts escaping 

detection. It will compel a project specialist who allows an excessive number 

of “escapes” to redo the work without pay.

G. Statement of Decision

In a detailed statement of decision, the court stated it was “manifestly 

unfair” to apply the ABC test, which was “unknown to all parties at the time 

of the [project specialist] contracts at issue, the audit, and the administrative 

proceedings.” Nevertheless, noting that judicial decisions are generally 

applied retroactively, and that Dynamex is concerned with a hiring business 

evading its “fundamental responsibilities,” the court “reluctantly” applied 

Dynamex. In doing so, the court found that VSC’s only client is Verify, and 

source inspection is “at the core” of what “the Verify group of companies” 

provides. Accordingly, the court determined the project specialists are VSC’s 

employees because VSC failed to establish “part B of the Dynamex test: that 

the worker performs work that is outside the usual course of the hiring 

entity’s business.” 

Alternatively, recognizing that “a reviewing court might 

conclude . . . that the court should have used the Empire Star[/][Borello] 

criteria,” the court reached the same result, finding:

1. VSC retained “control over the details of a critical part of the work” 

by (1) mandating the form project specialists use to report inspection results; 

and (2) having the right to terminate without cause on 30 days’ notice. Also, 
9

VSC employees “could be contacted in the event of questions or problems”

and VSC provided ethics and safety training. 

2. Project specialists were not engaged in a separately established 

occupation or business.

3. Neither VSC nor the project specialists provided the tools, 

instruments, and place of work.

4. Many project specialists had ongoing long-term relationships with 

VSC.

5. VSC paid project specialists hourly.

6. The Verify group of companies provides source inspection. The court 

rejected VSC’s “strained effort to portray itself as just a database manager.”

7. VSC is a business enterprise.

8. Source inspection requires highly skilled and experienced workers.

9. Under the Agreement, the parties believed they were creating an 

independent contractor relationship.

The court gave the greatest weight to findings that “the project 

specialists are absolutely critical to VSC’s success” and “ ‘active 

instruments’ ” of VSC’s enterprise. 

DISCUSSION

The single issue presented to the trial court for decision—and thus the 

single issue we review—is whether EDD properly characterized VSC’s project 

specialists as employees for purposes of work they performed during the 

audit years 2011‒2013. This requires that we answer two questions: (1) for 

purposes of assessing unemployment insurance tax, what is the appropriate 

test for determining whether a worker was an employee or independent 

contractor for work performed during that period; and (2) did the trial court 

correctly apply the appropriate test in reaching its decision? We ultimately 
10

determine that, with one minor exception that does not affect the result, the 

trial court properly applied the Borello factors to conclude that the project 

specialists were employees. Addressing VSC’s remaining arguments, we 

explain the trial court did not make and was not obligated to make the 

additional findings that VSC objects to.

A. Borello Applies to Unemployment Insurance Taxes Assessed for Work 

 Performed Before January 1, 2020.

VSC contends that as a matter of law, Borello applies in determining 

liability for unemployment insurance tax for work performed during the 

audit years. VSC also asserts that its due process rights would be violated by 

applying Dynamex retroactively. As explained below, we agree with the first 

contention, making it unnecessary to consider the second.

1. The Holding in Dynamex Applies Only to Alleged Violations of 

 Wage Orders and Related Labor Code Claims.

Whether certain workers should be classified as employees or 

independent contractors presents a question of law that we review de novo. 

(Air Couriers, supra, 150 Cal.App.4th at p. 932.) In Dynamex, this 

classification question arose in the context of alleged violations of a California 

wage order. (Dynamex, supra, 4 Cal.5th at pp. 913–914.) The wage order 

defined “ ‘ “[e]mploy” ’ ” as including to “ ‘ “suffer, or permit to work.” ’ ” 

(Dynamex, at p. 926.) A wage order ensures that workers are paid enough to 

maintain at least a subsistence standard of living. The court concluded that 

these objectives supported “a very broad definition of the workers who fall 

within the reach of the wage orders.” (Id. at p. 952.) In light of those policies, 

Dynamex “liberally construed” the “suffer or permit to work standard” to 

apply to all workers who “can reasonably be viewed as ‘working in the hiring 

entity’s business.’ ” (Id. at p. 953.) The Court found it to be “appropriate and 

most consistent with the history and purpose of the suffer or permit to work 
11

standard in California’s wage orders” to require the hiring entity to establish 

that the person is an independent contractor under the ABC test. (Id. at 

pp. 956‒957.)

At the same time, “Dynamex did not purport to replace the Borello

standard in every instance where a worker must be classified as either an 

independent contractor or an employee for purposes of enforcing California's 

labor protections.” [Citation.] To the contrary, the Supreme Court 

recognized that different standards could apply to different statutory claims.” 

(Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558, 570

(Garcia).) For example, in Garcia, this court held that although Dynamex

applied to the plaintiff’s wage order claims, Borello applied to non-wage-order 

claims involving overtime, wrongful termination, and waiting time penalties. 

(Garcia, at p. 571.) Similarly, in Gonzales, the court held that “statutory 

claims alleging misclassification not directly premised on wage order 

protections and which do not fall within the generic category of ‘wage and 

hour laws’ are appropriately analyzed under . . . the ‘Borello’ test.” (Gonzales, 

supra, 40 Cal.App.5th at p. 1140.)

Unlike Dynamex, this case does not involve alleged violations of a wage 

order or related claims. Rather, it concerns VSC’s statutory obligation to pay 

unemployment insurance tax for work performed during the audit years. 

Also unlike Dynamex, the definition of employee for purposes of 

unemployment insurance tax is not whether the hirer suffered or permitted 

the person to work. Rather, during the audit years, section 621, former 

subdivision (b) defined employee as “[a]ny individual who, under the usual 

common law rules applicable in determining the employer-employee 

relationship, has the status of an employee.” (Stats. 2010, ch. 522 (Sen. Bill
12

No. 1244), § 1, italics added.)3 Thus, to determine if VSC’s project specialists 

are employees for unemployment insurance tax purposes, we look not to the

wage order definition—“suffer or permit to work”—that was central in 

Dynamex, but instead to a statute Dynamex had no occasion to address and 

the definition in section 621, former subdivision (b) that requires application 

of “the usual common law rules.”

2. The “Usual Common Law Rules” Under Section 621, Former

 Subdivision (b) Are the Borello Factors and Not the Dynamex

 Test.

Beginning in 1981 and continuing to present, regulation 4304-1 has 

defined “the usual common law rules” under section 621, former subdivision 

(b): 

“Whether an individual is an employee for purposes of 

Section[] 621[,] [former subdivision] (b) . . . will be 

determined by the usual common law rules applicable in 

determining an employer-employee relationship. Under 

those rules . . . the most important factor is the right of the 

principal to control the manner and means of 

accomplishing a desired result. If the principal has the 

right to control the manner and means of accomplishing the 

desired result, whether or not that right is exercised, an 

employer-employee relationship exists. Strong evidence of 

that right to control is the principal’s right to discharge at 

will, without cause.

“(a) If it cannot be determined whether the principal has 

the right to control the manner and means of accomplishing 

a desired result, the following factors will be taken into 

consideration: 

3 Effective January 1, 2020, the Legislature amended section 621(b) to 

delete “the usual common law rules” and replace it with the ABC test. (Stats. 

2019, ch. 296, § 5.) In this opinion unless otherwise indicated, references to 

section 621(b) are to section 621, former subdivision (b), as quoted in the text 

immediately above.
13

“(1) Whether or not the one performing the services is 

engaged in a separately established occupation or business.

“(2) The kind of occupation, with reference to whether, in 

the locality, the work is usually done under the direction of 

a principal without supervision.

“(3) The skill required in performing the services and 

accomplishing the desired result.

“(4) Whether the principal or the person providing the 

services supplies the instrumentalities, tools, and the place 

of work for the person doing the work.

“(5) The length of time for which the services are 

performed to determine whether the performance is an 

isolated event or continuous in nature.

“(6) The method of payment, whether by the time, a piece 

rate, or by the job.

“(7) Whether or not the work is part of the regular 

business of the principal, or whether the work is not within 

the regular business of the principal.

“(8) Whether or not the parties believe they are creating 

the relationship of employer and employee.

“(9) The extent of actual control exercised by the principal 

over the manner and means of performing the services.

“(10) Whether the principal is or is not engaged in a 

business enterprise or whether the services being 

performed are for the benefit or convenience of the 

principal as an individual.” (Cal. Code Regs. tit. 22, § 4304-

1.)

In both purpose and effect, the regulation restates the Borello factors. 

It “lists the same factors to be considered in applying the right-to-control test 

that the Borello court listed.” (Espejo v. The Copley Press, Inc. (2017) 13 

Cal.App.5th 329, 351 (Espejo).) Therefore, in determining whether VSC’s 

project specialists are employees or independent contractors, the threshold 
14

inquiry is: in what legal context is the classification being made? If the 

context is the hirer’s obligation to pay unemployment insurance taxes during 

the audit years, section 621, former subdivision (b) and regulation 4304-1 

compel applying Borello. This conclusion is unaffected by Dynamex’s 

retroactive application because Dynamex simply does not apply to 

classification issues involving unemployment insurance taxes for work 

performed during the audit years. In concluding otherwise, the trial court 

erred. 

Focusing on section 621, former subdivision (b)’s reference to the 

“common law”—a body of law derived from judicial decisions rather than 

from statutes or constitutions—EDD contends that the Dynamex ABC test 

should nonetheless apply notwithstanding regulation 4304-1 and the caselaw 

construing it. EDD notes the “inherent capacity for growth and change” in 

the common law (Messenger Courier Assn. of Americas v. California 

Unemployment Ins. Appeals Bd. (2009) 175 Cal.App.4th 1074, 1090), and 

suggests that even if Borello was “the usual common law rule” under section 

621, former subdivision (b) during the audit years, by the time of trial the 

common law had “evolve[d]” in Dynamex.

EDD’s “evolution” argument disregards the effect of regulation 4304-1 

in defining the statutory term, “usual common law rules.” “Given the 

importance of certainty in tax law” (Yamaha Corp. of America v. State Bd. of 

Equalization (1998) 19 Cal.4th 1, 23 (conc. opn. of Mosk, J.)), the regulation

provides necessary guidance for taxpayers and is inconsistent with an intent 

to leave the classification of workers as employees or independent contractors 

under section 621, former subdivision (b) to case-by-case determinations and 

evolving judicial doctrine.
15

EDD’s position also ignores the context in which Dynamex was decided. 

As the Supreme Court’s very recent Vazquez decision makes clear, prior to 

Dynamex the Supreme Court had never spoken on the employee/independent 

contractor classification question in the specific context of wage order claims 

and related Labor Code violations. (Vazquez v. Jan-Pro Franchising 

International, Inc. (2021) 10 Cal.5th 944, 952 (Vazquez) [“Dynamex presented 

a question of first impression concerning how a wage order's suffer or permit 

to work standard should apply in the employee or independent contractor 

context.”]; id. at p. 953 [“Borello was not a wage order case and that decision 

did not purport to determine who should be interpreted to be an employee for 

purposes of a wage order. We resolved this question for the first time 

in Dynamex.”]; see also Gonzales, supra, 40 Cal.App.5th at p. 1157 [“Dynamex 

did not reach the question of whether the ABC test applies to nonwage order 

related Labor Code claims.”].) It was for this reason that the holding in 

Dynamex applied retroactively. As to wage order and related Labor Code 

violations, Dynamex “did not change a settled rule on which . . . parties . . . 

had relied.” (Vazquez, supra, 10 Cal.5th at p. 948.) But the same cannot be 

said of the classification question in the context of unemployment insurance, 

where the usual common law classification rules were clearly articulated by 

the Supreme Court in Empire Star Mines—rules that later became known as 

the Borello standard. (Empire Star Mines, supra, 28 Cal.2d at pp. 43–44.)

Significantly, Dynamex did not purport to overrule Empire Star Mines. 

(Vazquez, supra, at p. 952 [noting that Dynamex “did not overrule any prior 

California Supreme Court decision”].) Consistent with both preexisting law 

as well as the Supreme Court’s most recent exposition on the topic in 

Vazquez, Dynamex does not represent an evolution of the 

employee/independent contractor classification analysis in the context of 
16

assessing unemployment insurance taxes under section 621, former 

subdivision (b).

3. Recent Legislation Confirms the Borello Factors Apply In

 Assessing Unemployment Insurance Taxes for Work Performed 

 Prior to January 1, 2020.

EDD further asserts that the enactment of Assembly Bill No. 5 

(2019‒2020 Reg. Sess.) (Assembly Bill 5) in 2019 “unequivocally” 

demonstrates that “Dynamex is the appropriate test” to evaluate project 

specialists’ work in the audit years. To the contrary, however, this recent 

legislation reflects an express legislative understanding that for purposes of 

calculating unemployment insurance taxes, EDD would transition from 

applying the Borello factors to utilizing the Dynamex ABC test only for work 

performed on or after January 1, 2020.

After Dynamex was decided, the Legislature enacted Assembly Bill 5

(Stats. 2019, ch. 296), which amended both the Labor Code and 

Unemployment Insurance Code.4 The stated legislative purpose in enacting 

Assembly Bill 5 was to “codify” the Dynamex decision and to “clarify” the 

decision’s application in state law. (Stats. 2019, ch. 296, § 1(d).) To do so, 

among other things, it added former section 2750.3 to the Labor Code.5 

4 VSC’s unopposed request for judicial notice of Assembly Bill 5 is 

granted. (St. John’s Well Child & Family Center v. Schwarzenegger (2010) 50 

Cal.4th 960, 969, fn. 9 [taking judicial notice of a Senate Bill].)

5 Effective September 4, 2020, Labor Code section 2750.3 was repealed 

and was transferred without substantive changes to Labor Code sections 

2775, subdivision (b)(1) and 2785. Because the later nonsubstantive 

recodification is not relevant for our purposes, we discuss the substantive 

changes in the context of former Labor Code section 2750.3 as they became 

effective on January 1, 2020. Necessarily, all references to Labor Code 

section 2750.3 are intended as references to former Labor Code section 

2750.3.
17

Subdivision (a)(1) of this statute codified the Dynamex ABC test (1) “[f]or 

purposes of the provisions of this [Labor] code”; (2) “the Unemployment 

Insurance Code”; and (3) for “the wage orders of the Industrial Welfare 

Commission.” (Stats. 2019, ch. 296, § 2.) Assembly Bill 5 also amended 

section 621, which as we have already discussed previously distinguished in 

former subdivision (b) between employees and independent contractors based 

on the “usual common law rules.” The bill deletes “usual common law rules” 

in section 621, former subdivision (b) and, effective January 1, 2020, replaces

it with the ABC test.6 Thus, “while the Dynamex court repeatedly 

emphasized that the controversy before it—and implicitly its holding—was 

limited to the wage and hour context [citation], the Legislature made clear 

that it was broadly adopting the Dynamex holding for purposes of all benefits 

to which employees are entitled under the Unemployment Insurance Code, 

6 Effective January 1, 2020, section 621 now reads:

“Employee” means all of the following:” [¶] . . . [¶]

“(b) Any individual providing labor or services for 

remuneration has the status of an employee rather than an 

independent contractor unless the hiring entity 

demonstrates all of the following conditions:

“(1) The individual 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.

“(2) The individual performs work that is outside the usual 

course of the hiring entity’s business.

“(3) The individual is customarily engaged in an 

independently established trade, occupation, or business of 

the same nature as that involved in the work performed.” 

(Stats. 2019, ch 296, § 5.)
18

the Labor Code, and all applicable wage orders.” (People v. Uber Technologies

(2020) 56 Cal.App.5th 266, 277 (Uber).)

In expanding the Dynamex ABC test to unemployment insurance tax 

assessments, the Legislature also specifically addressed retroactivity.

Former Labor Code section 2750.3, subdivision (i)(1) provides that the ABC 

test in subdivision (a) of the statute “does not constitute a change in, but is 

declaratory of, existing law,” but only “with regard to wage orders of the 

Industrial Welfare Commission and violations of the Labor Code relating to 

wage orders.” (Italics added.) Conspicuous by its omission in this subdivision 

is any assertion that the ABC test was also declaratory of existing law with 

regard to unemployment insurance.7 The inescapable inference is that the 

Legislature recognized that adopting the ABC test was in that context a 

change in existing law (i.e., a change in section 621, former subdivision (b) 

and regulation 4304-1), and as such, should not be applied retroactively with 

respect to unemployment insurance. If anything more were needed,

subdivision (i)(3) of former Labor Code section 2750.3 states that except as 

provided in (i)(1) and (i)(2) (that is, except with respect to applying the ABC 

test to wage orders and Labor Code violations),8 “the provisions of this 

section of the Labor Code shall apply to work performed on or after January 

1, 2020.” Nowhere in subdivisions (i)(1) or (i)(2) is there any mention of 

unemployment insurance taxes.

7 As we have already explained, any such contention would have been 

disingenuous in light of the Supreme Court’s Empire Mines decision, which 

was the governing law when section 621, former subdivision (b) was adopted 

and which is the basis for regulation 4304-1.

8 Subdivision (i)(2) of former Labor Code section 2750.3, not relevant 

here, provides that insofar as the statute would “relieve an employer from 

liability,” those subdivisions apply retroactively to existing claims.
19

These express legislative directives limiting retroactivity of Assembly 

Bill 5’s amendment to section 621 convincingly refute EDD’s contention that 

Assembly Bill 5 should be given retroactive effect here because the intent of 

the bill was to “clarify” the application of the Dynamex test.9 There is a 

critical difference between legislation that clarifies the meaning of an 

existing statute (applied retroactively because the clarification simply 

declares what was always intended) and that which clarifies the application 

of case law by expanding it to different contexts (applied prospectively).10 As 

we have explained, Dynamex adopted the ABC test and applied it to wage 

order violations and related Labor Code claims. Assembly Bill 5 codified 

Dynamex in those contexts, but also expanded application of the ABC test to 

the assessment of unemployment insurance taxes. And it made clear that 

9 EDD also asserts that statutory exemptions in Assembly Bill 5 for 

certain businesses (former Labor Code, § 2750.3, subds. (c)‒(h)) indicate the 

Legislature understood Dynamex to apply retroactively because “[i]f Dynamex 

is only prospective, there would have been no need to actually scale back the 

scope of its holding.” As we have already explained, it was for the Supreme 

Court to decide the retroactive effect of Dynamex, which it did in Vazquez. 

Moreover, the existence of statutory exemptions in Assembly Bill 5 is 

irrelevant to deciding whether or to what extent the Legislature understood 

Dynamex to be retroactive.

 

10 Although it cites no authority in support of its argument, EDD 

presumably refers to the principle that where courts “have not yet finally and 

conclusively interpreted a statute and are in the process of doing so, a 

declaration of a later Legislature as to what an earlier Legislature intended 

is entitled to consideration.” (McClung v. Employment Development 

Dept. (2004) 34 Cal.4th 467, 473.) In this way, the Legislature might help 

“clarify” the meaning of existing law where there is uncertainty or 

controversy in the courts as to what was originally intended. This principle 

has no application here because Assembly Bill 5 contains no provisions

clarifying what an earlier Legislature meant by the phrase “usual common 

law rules” in section 621, former subdivision (b).
20

this expanded treatment would be prospective, applicable to work performed 

on and after January 1, 2020.11

Thus, we hold that with respect to unemployment insurance taxes for 

work performed before January 1, 2020, the “usual common law rules” within 

the meaning of section 621, former subdivision (b) are the Borello factors. 

For work performed on and after January 1, 2020, the ABC test applies 

under current section 621(b) as amended by Assembly Bill 5, as well as under 

current Labor Code sections 2775, subdivision (b)(1) and 2785, subdivisions 

(a) and (c).

B. Substantial Evidence Supports the Trial Court’s Finding of an 

 Employee Relationship Under the Borello Factors.

1. The Standard of Review is Substantial Evidence

Determining whether a person is an employee or an independent 

contractor is generally a question of fact if it depends on resolving disputes in 

the evidence, but it can be decided as a matter of law if the evidence supports 

only one credible conclusion. (Borello, supra, 48 Cal.3d at p. 349.) “As a 

result, appellate case law in this area arises primarily in the context of 

11 The prospective-only application of the ABC test to unemployment 

insurance is confirmed by Assembly Bill 5’s legislative history. A bill 

summary noted that applying the ABC test to determine unemployment tax 

“represents a change from how [EDD] has conducted employment status 

determinations previously (which were based on common law).” (Sen. Com. 

on Appropriations, Rep. of Assem. Bill 5 (2019‒2020 Reg. Sess.) July 11, 

2019, p. 6, italics added.) Similarly, an Assembly Committee analysis noted 

that applying the ABC test in the unemployment insurance context would 

result in “more workers classified as employees” when compared “to EDD’s 

current practice.” (Assem. Com. on Appropriations, Analysis of Assem. Bill 5 

(2019‒2020 Reg. Sess.) May 16, 2019, p. 3.) Legislative history of Assembly 

Bill 5 can be found at <http://leginfo.legislature.ca.gov/faces/billAnalysis

Client.xhtml?bill_id=201920200AB5> [as of Mar. 16, 2021], archived at 

<http://perma.cc/63KW-XMWH>.
21

substantial evidence review of the determinations of the relevant fact finder.” 

(Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 78

[collecting cases].)

VSC does not dispute that if Borello applies, the trial court considered 

the correct factors. Rather, it contends the court misapplied those factors to 

undisputed evidence. As a result, it asserts that the appropriate standard of 

review is de novo.

This case involves evidence that must be weighed by a trier of fact. For 

example, VSC contends that the court made a “fundamental error” in 

determining that VSC has the right to control the project specialists because 

VSC does not direct how project specialists conduct source inspection. 

However, the evidence on VSC’s control was not one-sided. 

If a Verify customer is dissatisfied with a project specialist, VSC had 

the right to (and would) investigate the complaint and initiate corrective 

action. VSC was able to terminate a project specialist for any reason, even 

apart from a customer’s complaint. It could also compel a project specialist to 

work without pay under certain circumstances. VSC further required project 

specialists to input results of source inspections on VSC’s computer system. 

A VSC group leader will respond to a project specialist’s request for 

assistance. Project specialists are required to remain in contact with VSC 

during an assignment. A former Verify vice president testified that 

customers expected Verify to supervise the project specialists.

There was also conflicting evidence on whether project specialists were 

engaged in a separately established business. Some had established 

corporate entities for VSC work. Others had not. And even some who had 

established a corporation or limited liability company had no clients besides 

VSC, did no advertising, had no website and no business card. 
22

Accordingly, determining whether project specialists are VSC’s 

employees or independent contractors is a factual issue, and the trial court’s 

finding must be upheld if supported by substantial evidence. (Borello, supra, 

48 Cal.3d at p. 349.)

2. Although VSC Has Forfeited the Substantial Evidence Issue,

 There is No Prejudice to EDD and We Will Consider the Point.

VSC stakes its appeal on a de novo standard of review. The opening 

brief devotes 26 pages in arguing that “[i]ndependent review of the evidence 

reveals that the trial court’s analysis of the Empire Star/Borello/[regulation] 

4304-1 factors was deeply flawed.” Because the substantial evidence 

standard applies instead, it is unnecessary to consider this argument.

Alternatively, VSC contends, “Should the [c]ourt conclude the proper 

standard of review be the substantial evidence test, the [c]ourt should still 

reverse.” This argument is less than one page in VSC’s opening brief. It 

contains no record citations and no legal analysis. VSC simply asserts, as if 

self-evident, that “there is no substantial evidence to support the trial court’s 

ruling of employee status. The evidence shows that the [p]roject [s]pecialists 

are independent contractors, providing on demand source inspection services 

for a variety of military and aerospace contractors.”

“ ‘An appellant challenging the sufficiency of the evidence to support 

the judgment must cite the evidence in the record supporting the judgment 

and explain why such evidence is insufficient as a matter of law. [Citations.] 

An appellant who fails to cite and discuss the evidence supporting the 

judgment cannot demonstrate that such evidence is insufficient. The fact 

that there was substantial evidence in the record to support a contrary 

finding does not compel the conclusion that there was no substantial evidence 

to support the judgment.’ ” (Verrazono v. Gehl Company (2020) 50 

Cal.App.5th 636, 652.) Accordingly, a party challenging the judgment for 
23

lack of substantial evidence must “ ‘set forth, discuss, and analyze all the 

evidence on that point, both favorable and unfavorable.’ ” (Pope v. Babick

(2014) 229 Cal.App.4th 1238, 1246.) “Unless this is done the error is deemed 

to be waived.” (Ibid.) By failing to cite evidence supporting the judgment 

and explain why such evidence is insufficient, VSC has forfeited the 

substantial evidence issue. 

Nevertheless, we exercise our discretion to consider the point because

EDD (1) has not argued forfeiture, and (2) is not prejudiced, having fully 

briefed the Borello factors and cited the evidence it contends supports the 

findings. We deem VSC’s arguments challenging the Borello findings on a de 

novo standard of review to encompass an alternative claim that each is also

unsupported by substantial evidence. 

3. The Trial Court’s Finding of an Employee Relationship is 

 Supported by Substantial Evidence.

a. VSC had the right to control and exercised actual control

Under regulation 4304-1, “the most important factor” in distinguishing 

an employee from independent contractor is the employer’s right “to control 

the manner and means of accomplishing a desired result.” Substantial 

evidence supports the court’s finding that VSC had the requisite right to 

control. VSC determined the manner and means of reporting source 

inspection results. It also provided supervision and advice upon a project 

specialist’s request. A former VSC vice president testified that customers 

expected supervision. Moreover, “the strongest evidence of the right to 

control is whether the hirer can discharge the worker without cause, because

‘[t]he power of the principal to terminate the services of the agent gives him 

the means of controlling the agent’s activities.’ ” (Ayala v. Antelope Valley 

Newspapers, Inc. (2014) 59 Cal.4th 522, 531 (Ayala).) Under the Agreement, 

VSC is authorized to terminate the project specialist without cause.
24

Citing Varisco v. Gateway Science & Engineering (2008) 166 

Cal.App.4th 1099 (Varisco), VSC claims that all it did was “connect the 

[p]roject specialists with suppliers and primary contractors” and “[t]he fact 

that VSC . . . required the [p]roject [s]pecialists to report their inspection” in 

a particular manner is insufficient to establish an employer-employee 

relationship. It asserts that “[w]hat matters is whether the principal 

oversees the actual work” and not, as the trial court believed, whether it 

controls the reporting of the work.

However, the facts in Varisco, supra, 166 Cal.App.4th 1099 are 

significantly distinguishable. In Varisco, a company providing quality 

assurance services, called Gateway, hired an inspector to check construction 

undertaken by a school district. (Id. at p. 1102.) Gateway paid the inspector 

by the hour and sent him to the job site. That is all Gateway did. (Id. at 

p. 1105.) Gateway did not train the inspector. (Ibid.) If questions arose, the 

inspector addressed them to the school district, not to Gateway. (Ibid.) The 

inspector reported results to the school district on its forms, not Gateway’s. 

(Id. at p. 1106.) He supplied his own tools and equipment. (Id. at p. 1105.) 

On these undisputed facts, the court determined that the inspector was an 

independent contractor. (Ibid.)

VSC’s project specialists are unlike the Varisco inspector in a number 

of significant respects:

• VSC provided customer orientation to project specialists.

• A Verify program leader instructed project specialists how to use 

suppliers’ reporting systems. 

• Using Verify educational materials, VSC mandated that project 

specialists pass an ethics test based on VSC’s code of ethics.
25

• VSC required that project specialists pass a safety test based on 

educational materials used by both Verify and VSC. 

• VSC arranged work-related travel for project specialists.

• VSC provided project specialists with VSC branded business cards.

• VSC trained project specialists on certain international regulations.

• Customers expected Verify to supervise, oversee, and manage project 

specialists.

• VSC provided software for project specialists to record time and upload 

the results of the source inspection.

VSC also contends that its right to terminate without cause does not 

evidence control because the Agreement requires 30 days’ notice. However, 

the notice period is not dispositive. The right to discharge is probative of a 

right to control because instructions “ ‘ “ ‘would have to be obeyed’ ” ’ on pain 

of at-will ‘ “ ‘discharge[] for disobedience.’ ” ’ ” (Ayala, supra, 59 Cal.4th at 

p. 533.) Project specialists work only when VSC contacts them about a 

potential project. Even with a 30-day notice period, a right to discharge 

without cause would reasonably be expected to compel a project specialist 

desiring future assignments to obey VSC’s directives. 

In Espejo, supra, 13 Cal.App.5th 329, this court considered whether 

newspaper carriers were employees or independent contractors under a 

contract that was terminable without cause on 30 days’ notice. (Id. at p. 346.) 

The trial court in Espejo relied on the termination provision, among other 

factors, to determine the carriers were employees. (Ibid.) Applying the 

Borello test this court affirmed, stating that the right to “terminate the 

contract on 30 days’ notice” evidenced the hirer’s right to control under 

regulation 4304-1. (Espejo, at pp. 348, 351.) 
26

In a related argument, VSC contends that under the Agreement,

project specialists also have a right to terminate without cause. Citing 

Beaumont-Jacques v. Farmers Group, Inc. (2013) 217 Cal.App.4th 1138, 

Ayala, supra, 59 Cal.4th 522, and Perguica v. Industrial Accident 

Commission (1947) 29 Cal.2d 857, it maintains that a mutual at-will 

termination provision indicates an independent contractor relationship. But 

the problem with this argument lies in its premise. VSC project specialists 

do not have a right to terminate without cause. Although the Agreement 

provides that “[e]ither party may terminate this Agreement at any time and 

for any reason, without [c]ause,” the same sentence contains an exception. 

The exception is that a project specialist “may not terminate without [c]ause 

after [he or she] has accepted a project until [the project specialist] has 

completed the project or [the project specialist] shall be financially 

responsible for any additional costs incurred to complete the project.” 

Because VSC hires project specialists on a project-by-project basis, a right to 

terminate without cause only after the project is complete is effectively no 

right to terminate at all.12

12 Citing Ayala, supra, 59 Cal.4th at page 531, footnote 2, VSC also 

contends that a worker who is required to finish a project before terminating 

a contract of hire “is an independent contractor.” However, Ayala merely 

states that such facts are “relevant,” not dispositive. It also confirms that the 

“strongest evidence of the right to control is whether the hirer can discharge 

the worker without cause.” (Id. at p. 531.) Consistent with Ayala, the trial 

court considered VSC’s right to terminate without cause as an important but 

not determinative factor in its analysis. 
27

b. Project Specialists are not engaged in a distinct business

The trial court found that some project specialists had created their 

own business entities, but others did not. It concluded that this factor 

“slightly favors EDD” because “even those who had created their own entities 

really were not doing much with them outside of their work for VSC.” VSC 

contends “the undisputed evidence” is otherwise. 

The record supports the trial court’s finding. Patrick L. testified that

his business entity has no website, no e-mail address, no business cards, and 

no employees except himself. Elizabeth M. similarly testified that her 

business entity has no other employees, no clients besides VSC, no website, 

does no advertising, and has no business cards. Other project specialists had 

not created separate entities. John B. testified that has worked only for VSC 

and has no independent business. Val S. has no separate business entity and

has worked almost exclusively for VSC for 20 years.

The trial court could properly evaluate this evidence as providing some 

support for a finding that project specialists were employees.

c. There was no evidence on whether the work is usually done

 in the locale without supervision

The trial court found that the parties offered “very little evidence” on 

whether source inspection is “usually” done without supervision. Elaborating 

on this factor, the court noted:

“There was no expert testimony addressing whether, in 

Southern California, source inspection is typically done 

using the business model used by VSC and its competitors, 

or rather done by employees of prime contractors. The 

standard of practice in the industry was argued, but not 

really developed factually by either side.” (Italics added.)
28

Determining that “the evidence on this factor really favors neither side,” the 

court concluded that “EDD prevails on this issue” because VSC bore the 

burden of proof. 

VSC contends the court erred because the “only evidence” is that 

project specialists “were not supervised while conducting inspections.” 

However, the argument misses the target. This factor focuses on how the 

work “is usually done” in a given locale, not how the work was done in this 

particular case. Evidence that VSC did not supervise in a hands-on manner 

during source inspections sheds light on VSC’s practices, but without more 

does not demonstrate how source inspection “is usually done” in the locale by 

others performing similar tasks. 

d. Project specialists are highly skilled

Source inspection requires highly skilled labor. The trial court 

acknowledged that many project specialists had “years if not decades of 

experience,” and the court found this factor favored VSC.

e. Neither VSC nor project specialists supplied the tools 

 and instruments

The trial court found that measuring instruments used in source 

inspection are supplied by neither VSC nor the project specialists, but instead 

by the supplier. The court determined this factor “slightly favored EDD” 

because a “true independent contractor would invest heavily in his/her own 

measuring equipment and keep it calibrated.” VSC contends the court erred 

because suppliers are contractually required to provide the measuring 

instruments, which must be calibrated to precise specifications. 

We agree with VSC. In distinguishing employee from independent 

contractor, ownership of tools is probative because ownership implies a right 

to control their use. Here, however, neither VSC nor the project specialists
29

own the instruments, nor as a practical matter could they. Accordingly, this 

factor does not apply here.13 

f. The work is continuous

The trial court found that many project specialists had ongoing longterm relationships with VSC. Several worked “near full time 40 hour weeks.” 

The court determined this factor “easily favored EDD” and indicated “an 

employment [rather] than an occasional independent contractor 

relationship.”

VSC contends this finding is erroneous because (1) the Agreement 

provides, “Continuity of relationship . . . is not contemplated”; (2) project 

specialists testified they could (and did) decline work without negative 

repercussions; and (3) some project specialists choose to work only part time. 

However, there was also evidence that project specialists had worked 

exclusively for VSC for 11, 18, 20, and even for 28 years. The evidence VSC

relies on might support a different finding, but it does not establish a lack of 

substantial evidence to support the finding made. 

g. Project specialists are paid by the hour, not by the job

VSC paid project specialists by the hour, which is the industry 

standard. There was no contrary evidence. The trial court determined this 

factor favored an employee relationship because “[a] true independent 

contractor would be able to develop and charge a flat fee per visit to a 

supplier site.”

VSC contends there was “no evidence” that a true independent 

contractor would charge a flat fee for source inspection. Citing National 

Elevator Services, Inc. v. Department of Industrial Relations (1982) 136 

13 We will consider whether this error was prejudicial after analyzing the 

remaining Borello factors. (See post, at part B(3)(k).)
30

Cal.App.3d 131, VSC asserts that historically, hourly wages indicated an 

employer-employee relationship; however, modernly, “there is no logical 

connection” between hourly pay and distinctions between employee and 

independent contractor. (Id. at pp. 170‒171.) VSC points out that attorneys, 

quintessential independent contractors, customarily bill by the hour.

VSC’s argument is not unreasonable. Receiving hourly wages is not a 

completely reliable guide to distinguishing between employee and 

independent contractor. But common experience teaches that a worker who 

receives hourly wages is likely (but not necessarily) an employee, and a 

worker who receives payment by the task is likely (but not necessarily) an 

independent contractor. Accordingly, the court did not err in considering this 

factor as tilting towards employee status.

h. Source inspection is a part of VSC’s regular business

VSC asserts the evidence was “undisputed” that its business is 

maintaining a database of highly skilled self-employed project specialists, 

and VSC does not do source inspections. The trial court disagreed. It found 

that “VSC’s only client is Verify, and Verify’s clients are the aerospace and 

defense contractors who benefit from the labor provided by project 

specialists.” The court concluded that “the work in question, principally 

source inspections, is at the core of what the Verify group of companies 

provides to its aerospace customers.” By way of comparison, the court noted 

that a “caterer brought in to serve dinner at Verify’s holiday party would be 

an independent contractor” as would an “asphalt company brought in to resurface the parking lot at Verify’s headquarters” and a “plumber brought in 

to repair a leak in the executive washroom in Verify’s offices.”

VSC contends the court erroneously determined that project specialists 

are “part of VSC’s database business.” However, this misstates the court’s 
31

finding. The court “reject[ed] [VSC’s] strained effort to portray itself as just a 

database manager.” Rather, the court found that VSC “is part of a unitary 

business providing staffing solutions to its aerospace clients.” To the extent 

VSC’s argument encompasses a challenge to that determination, we reject it. 

Although the trial court did not have the benefit of Uber, supra, 56 

Cal.App.5th 266, the analysis in that case supports the court’s conclusions

here. 

Uber offers a mobile phone application that matches those in need of a 

ride to drivers available to give them rides using their own vehicles. (Uber, 

supra, 56 Cal.App.5th at p. 278.) VSC is similar—it offers a database to 

match those in need of a source inspection with a project specialist available 

to do so. The contracts between Uber and its drivers provide that the 

relationship is not one of employment, but instead as “independent business 

enterprises, each of whom operates a separate and distinct business 

enterprise that provides a service outside the usual course of business of the 

other.” (Id. at pp. 278‒279.) Similarly here, the Agreement characterizes the 

relationship as that of independent contractor. Uber drivers need not accept 

any minimum number of rides to use the platform, are free to work for 

competitors (such as Lyft) and to decline work. (Id. at p. 279.) Uber monitors 

its drivers and may use low ratings to “deactivate” them. (Id. at p. 280.) 

Similarly, project specialists are free to decline offered work, and VSC 

monitors its project specialists’ performance and in response to customer 

complaints, can terminate a project specialist and remove the person from 

the database.

Uber asserted that it was not in the business of providing rides, but 

instead merely provides a platform to connect drivers and riders. (Uber, 

supra, 56 Cal.App.5th at pp. 280‒281.) VSC’s claim—that it is not in the 
32

business of providing project specialists, but instead merely a database to 

connect project specialists with customers—is strikingly similar. 

The court in Uber recognized that Uber’s business model was “different 

from that traditionally associated with employment, particularly with regard 

to drivers’ freedom to work as many or as few hours as they wish, when and 

where they choose.” (56 Cal.App.5th at p. 294.) It nonetheless concluded 

that the drivers performed services in the regular course of Uber’s business. 

The court reasoned that “the parties’ characterization of their relationship is 

not dispositive because their ‘actions determine the relationship, not the 

labels they use.’ ” (Id. at p. 295.)

Similarly here, all of VSC’s revenue comes from providing project 

specialists from its database to Verify. Like Uber, VSC screens potential 

candidates, collects information on their job performance, and may use 

negative customer reports to discipline and even terminate a project 

specialist. Also like Uber, VSC’s business differs from traditional 

employment, particularly with regard to the project specialist’s freedom to 

decline work and work as many or few hours as he or she chooses. Such facts 

did not compel a finding of independent contractor status in Uber and 

similarly fail to do so here. 

i. The parties believed they were creating an independent

 contractor relationship

The Agreement specifies the relationship between VSC and a project 

specialist is that of independent contractor. Project specialists all testified 

they believed they were independent contractors and many enjoyed the 

flexible working hours that relationship afforded. Apart from noting this 

evidence, VSC makes no argument about its significance. 

The trial court found this factor “easily favored” VSC. Obviously, VSC 

does not challenge that finding. As even the Supreme Court in Borello 
33

recognized, however, “[t]he label placed by the parties on their relationship is 

not dispositive.” (Borello, supra, 48 Cal.3d at p. 349.) Courts ignore the 

parties’ characterization if their actual conduct establishes a different 

relationship. (Estrada v. FedEx Ground Package System, Inc. (2007) 154 

Cal.App.4th 1, 10‒11.)

j. VSC operates as a business, not an individual

VSC acknowledges that it operates as a business and this factor “leans” 

towards establishing an employer-employee relationship.

k. The Borello weighing and harmless error

“[T]he process of distinguishing employees from independent 

contractors is fact specific and qualitative rather than quantitative.” (State 

Compensation Ins. Fund v. Brown (1995) 32 Cal.App.4th 188, 202.) “ ‘ “[T]he 

significance of any one factor and its role in the overall calculus may vary 

from case to case depending on the nature of the work and the evidence.” ’ ”14 

(Uber, supra, 56 Cal.App.5th at p. 276.)

Here, the trial court determined that the two factors favoring an 

independent contractor relationship—the skilled nature of the work, and the 

parties’ belief they were creating an independent contractor relationship—

“should be accorded less weight in light of the evidence of right to control and 

14 VSC requests judicial notice of four Unemployment Insurance Appeals 

Board decisions finding certain VSC project specialists to be independent 

contractors. EDD opposes this request, noting that the court sustained 

objections to these documents and contending, in any event, that the 

decisions are not relevant. The Unemployment Insurance Appeals Board 

designates certain of its decisions as “precedent decisions.” (§ 409.) Decisions 

by the Unemployment Insurance Appeals Board that have no precedential 

effect are not subject to judicial notice. (Employment Development 

Department v. California Unemployment Ins. Appeals Bd. (2010) 190 

Cal.App.4th 178, 188, fn. 4.) VSC concedes that the decisions attached to its 

request for judicial notice are not precedential decisions. Therefore, the 

request for judicial notice of exhibits 1 through 4 is denied. 
34

in light of the fact that the project specialists are absolutely critical to VSC’s 

success.” Accordingly, it found that VSC failed to carry its burden to 

establish that the employee classification was erroneous. As we have 

indicated in discussing the individual Borello factors, the court’s qualitative 

weighing of those factors was appropriately within the boundaries of its 

discretion. 

We have recognized that the trial court made one error in considering 

the tools-and-instruments factor as indicating an employee relationship. 

However, this error is prejudicial only if it is reasonably probable that a 

result more favorable to VSC would have been reached absent the error. (See 

Red Mountain, LLC v. Fallbrook Public Utility Dist. (2006) 143 Cal.App.4th 

333, 348.) 

We comfortably conclude this single error is not prejudicial for three

reasons. First, the court found this factor weighed only “slightly” in EDD’s 

favor. Second, although this factor does not favor EDD, it also does not favor 

VSC. Thus, even if the court had correctly determined that this factor was 

inapplicable, there would still be only two Borello factors favoring an 

independent contractor relationship. Third, the court stated the most 

significant factor was that the project specialists are “ ‘active instruments’ ” 

of VSC’s enterprise and provide an “ ‘indispensable’ ” service to VSC. As 

discussed above, the evidence fully supports that finding. 

C. The Trial Court Did Not Make, Nor Was It Required to Make, the 

 Additional Findings That VSC Purports to Challenge.

The only issue litigated at trial was whether project specialists were 

VSC’s employees or independent contractors. VSC’s trial brief asserts, “The 

single issue to be tried here is whether Project Specialists in California 

between 2011 and 2013 are independent contractors or employees, and if so, 

[sic] is entitled to a full refund of tax and interest paid.” EDD’s attorney 
35

agreed, asserting in opening statement, “The issue in this case, as counsel 

indicated, is whether EDD and the Unemployment Insurance Appeals Board 

were mistaken in determining that the workers at issue here . . . are, in fact, 

employees.” Notwithstanding this apparent agreement, VSC contends that 

trial court erred in failing to make findings on whether VSC and Verify were 

“unitary businesses” for purposes of section 135.2 and whether VSC was a 

“leasing” or “loaning” employer pursuant to section 606.5. 

Neither of these issues was presented to the court for decision. The 

first mention of section 135.2 at trial was after VSC rested and EDD brought 

a motion for judgment under Code of Civil Procedure section 631.8. In 

asserting that project specialists are “integral to the work of VSC,” EDD’s 

lawyer noted “[p]reliminarily” that “VSC and Verify are a unitary business. 

They have largely the same officers, they have the same objective. They work 

hand in glove. Verify gets the clients. VSC supplies the project specialists. 

And the concept of what’s called a unified business enterprise or unitary 

business is made applicable . . . [by] . . . section 135.2 and it certainly applies 

here.” Later during closing argument, EDD’s attorney made the same 

observation, mentioning section 135.2 once. Without citing the statute, the 

court’s statement of decision contrasted VSC’s contention that its business “is 

simply to maintain and manage [a database]” with EDD’s position that VSC 

and Verify “are a unitary business providing a range of staffing solutions.” It 

added, “The evidence easily preponderates in favor of EDD’s view.” 

This does not amount to a finding for purposes of section 135.2 that 

VSC and Verify constituted “one employing unit.” Indeed, the statement of 

decision nowhere mentions the statutory term, “one employing unit.” 

Although the court described Verify, VSC, and VTR as a “unitary business,”

that was only for purposes of determining whether source inspection is part 
36

of VSC’s regular business under Borello—a distinctly different issue from 

whether the requisite control has been exercised to sustain a finding of “one 

employing unit” under section 135.2.15 The fact that VSC objected to the 

court’s proposed statement of decision by requesting that the court rule on 

this issue16 does not change the fact that the statutory issue was not before 

the court, nor can it compel the court to make specific findings pursuant to 

section 135.2 that were not otherwise required. 

For similar reasons, the court was not required to make statutory 

findings as to whether VSC was a “leasing” or “lending” employer within the 

meaning of section 606.5. Again, this was not an issue presented to the court 

for resolution. VSC references the fact that section 606.5 was mentioned 

several times in the court’s statement of decision. But the court did not cite 

or otherwise rely on section 606.5 in addressing the issue it was required to 

decide—application of the Borello factors to determine that an employeremployee relationship exists between VSC and project specialists for work 

performed during the audit years. Accordingly, it is unnecessary to consider 

this point and we express no opinion on it. 

15 To the extent VSC is challenging the factual basis for the court’s 

reasoning, there is more than substantial evidence. Several individuals have 

dual roles in both VSC and Verify. For example, Bernard Fallon, who 

founded VSC, is a VSC officer and on Verify’s board of directors. James 

McIntosh serves as president of both Verify and VSC. Andrew Wright is 

VSC’s chief financial officer (CFO). He is also CFO for Verify and VTR. All of 

VSC’s revenue is from supplying project specialists to Verify. Wright testified 

that Verify and VSC have an “arm’s length” agreement for those VSC 

services. Wright negotiated that agreement as a member of both Verify and 

VSC. The same people were on both sides of this “arm’s length” negotiation. 

 

16 The trial court overruled the objection, explaining that “a court’s 

statement of decision is sufficient if it fairly discloses the court’s 

determination as to the ultimate facts and material issues in the case.” 
37

DISPOSITION

The judgment is affirmed. Respondents are entitled to costs on appeal.

DATO, J.

WE CONCUR:

HALLER, Acting P. J.

O’ROURKE, J.