Court Opinion

ID: 4669285
Source: CourtListenerOpinion
Date Created: 2021-03-18 20:02:28.061971+00
Date Added: 2024-06-11T07:58:47.446194
License: Public Domain

Filed 3/18/21

                        CERTIFIED FOR PUBLICATION

                COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                  DIVISION ONE

                           STATE OF CALIFORNIA

VENDOR SURVEILLANCE                          D076079
CORPORATION,
       Plaintiff and Appellant,
       v.                                    (Super. Ct. No. 37-2016-00037096-
                                             CU-MC-CTL)
PATRICK W. HENNING, JR., as
Director, etc., et al.,
       Defendants and Respondents.

       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
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.

                                        2
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:

                                         3
          “[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

                                        4
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

                                        5
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.)

                                       6
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.

                                       7
      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,

                                        8
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

                                          9
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

                                          10
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

                                       11
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.
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         “(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

                                       13
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.

                                         14
      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

                                       15
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.

                                       16
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.)
                                       17
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.
                                       18
      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).

                                       19
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  [as of Mar. 16, 2021], archived at
.

                                       20
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.

                                      21
      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

                                       22
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.

                                       23
      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.

                                        24
   • 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.)

                                         25
      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.
                                        26
            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.)

                                       27
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

                                       28
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 long-
term 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).)
                                        29
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 re-
surface 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

                                       30
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

                                        31
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

                                        32
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.
                                       33
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

                                        34
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

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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 employer-
employee 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.”
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                              DISPOSITION
     The judgment is affirmed. Respondents are entitled to costs on appeal.

                                                                  DATO, J.

WE CONCUR:

HALLER, Acting P. J.

O’ROURKE, J.

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