Court Opinion

ID: 6327076
Source: CourtListenerOpinion
Date Created: 2022-03-25 21:01:36.51902+00
Date Added: 2024-06-11T09:22:20.020544
License: Public Domain

Filed 3/25/22
                              CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                               THIRD APPELLATE DISTRICT
                                         (Sacramento)
                                               ----

 JOSE J. MEJIA et al.,                                                  C087709

                  Plaintiffs and Appellants,                       (Super. Ct. No.
                                                             34201600190824CUOEGDS)
          v.

 ROUSSOS CONSTRUCTION, INC.,

                  Defendant and Respondent.

       APPEAL from a judgment of the Superior Court of Sacramento County,
Shelleyanne Wai Ling Chang, Judge. Reversed with directions.

        Tong Robbins LLP, B. Douglas Robbins for Plaintiffs and Appellants.

       PETERSON WATTS LAW GROUP, LLP, Richard M. Watts, Jr. and Jeremy S.
Millstone for Defendant and Respondent.

        Plaintiffs Jose J. Mejia et al. appeal following a jury verdict in favor of defendant
Roussos Construction, Inc. Principally, they contend the trial court erred in its
instructions to the jury regarding the “ABC test” which determines whether a worker is
an employee or an independent contractor for purposes of California wage laws. The

                                                1
trial court had instructed the jury that before the ABC test is applied, plaintiffs must first
establish that they were hired by Roussos Construction or its agent. We agree this was
error. We will reverse the affected counts and remand for a new trial.
       Plaintiffs also raise several contentions contingent on us finding plaintiffs were
misclassified as independent contractors as a matter of law. We need not reach that
argument and take no action on the additional contentions.

                      FACTS AND HISTORY OF THE PROCEEDINGS
       As pertinent to this appeal, plaintiffs are unlicensed flooring installers, who
installed floors on behalf of defendant, Roussos Construction Inc., a general contractor.
The dispute at trial largely turned on the status and function of three individuals who
stood in between plaintiffs and Roussos. Plaintiffs called them “supervisors”; Roussos
called them “subcontractors.”
       At trial, Roussos maintained that it used independent subcontractors (the three
supervisors/subcontractors) who were licensed to perform work not permitted by
Roussos’ contractor’s license. Those subcontractors hired and paid the plaintiffs, and
according to Roussos, any mistakes in categorizing the flooring installers or complying
with labor laws were solely the subcontractors’.
       Plaintiffs maintained that Roussos had employed a misclassification scheme,
whereby it placed a “man in the middle” between the company and the flooring
installation employees. By classifying the flooring installers as subcontractors, Roussos
avoided having to provide them with benefits or complying with labor laws.
       All three supervisors/subcontractors testified at trial. One testified that he
“[p]rovided labor for installations.” He answered, “correct,” when asked, “they worked
for you. You worked for Roussos. . . .?” He also testified that plaintiffs were
“contractors,” not employees.

                                               2
       Another testified that he worked as a contractor for Roussos and engaged
subcontractors to work on projects for Roussos. He testified that about 90 percent of his
work was for Roussos. But he denied ever managing or supervising installers. He also
testified that he did not treat the installers as employees and did not provide them
benefits.
       The third supervisor/subcontractor testified he was a subcontractor for Roussos
and “installers” worked under his authority. He testified that he treated the installers as
“independent installers” and did not provide labor protections, breaks, overtime, or wage
statements. He also testified that Roussos had nothing to do with his decision on how to
classify workers.
       None of the three supervisors/contractors had a written contract with Roussos
prior to litigation.

       The Instruction Dispute

       As to counts 1 through 4 pertaining to unpaid wages, overtime, meal and rest
periods, and wage statements, the parties and trial court agreed the jury should be
instructed on the ABC test articulated in Dynamex Operations W. v. Superior Court
(2018) 4 Cal.5th 903 (Dynamex). Under that test, a worker is presumed an employee
unless the “hiring entity” establishes three factors: (A) the worker is free from the hiring
entity’s control and direction in connection with the work; (B) the work is outside the
hiring entity’s usual course of business; and (C) the worker is customarily engaged in an
independently established trade, occupation, or business. (Id. at pp. 957, 964.)
       The parties, however, parted ways as to whether the jury should be instructed to
first determine whether plaintiffs were hired by Roussos or an agent of Roussos’ before
applying the ABC test. Counsel for Roussos argued before the ABC test applies, “you
first have to establish the hiring entity . . . .” He explained: “They’ve got to prove the
agency theory in order to get to the ABC test. [¶] If there was no agency established and

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the subcontractors did not have the right to hire on behalf of Roussos . . . then we don’t
get to the ABC test because Roussos was not the hiring entity . . . .”
       Plaintiffs’ counsel responded that Dynamex has no hiring test, but instead looks to
the work performed. An employer can include one who knows persons are working in
his business without being formally hired. Further, the Dynamex test places the burden
on the defense, while the proposed instruction places the burden on plaintiffs to first
prove they were hired by Roussos or an agent.
       Defense counsel replied: “You’ve got to establish that we’re the hiring entity in
order to make us have the presumption. [¶] That’s what Dynamex says. It’s very clear.”
       The trial court ultimately agreed: “this jury does need to make the predicate
finding of whether or not Roussos Construction was the hiring entity.” It explained that
Dynamex applies, and, “Dynamex does indicate . . . that the issue is the hiring entity first,
and then if the jury finds that . . . Roussos Construction was the hiring entity of the
Plaintiffs, then the burden shifts to Roussos Construction to prove all of the three ABC
test elements.”

       Jury Instructions and Verdicts

       The jury was thereafter instructed, as to counts 1 through 4, that plaintiffs, “claim
they were employees of Roussos Construction, Inc. and therefore entitled to payment for
unpaid wages for each hour worked, overtime wages for overtime hours worked, meal
periods, rest breaks and failure to provide accurate pay statements. To establish this
claim, they must prove they were hired by Roussos Construction. [¶] If [plaintiffs] prove
they were hired by Roussos Construction, Inc., or an agent of Roussos Construction Inc.,
then the law presumes they were employees of Roussos Construction, Inc. unless
Roussos Construction, Inc. proves all of the following….” The instruction then provided
the ABC test factors.

                                              4
       As to counts 5 through 7, the jury was instructed using the multifactor Borello test.
The instruction provided in part that, “the most important factor is whether Roussos
Construction Inc. had the right to control how [plaintiffs] performed the work, rather than
just the right to specify the result.” The jury was also told to take into account factors
including, whether “[t]he work being done by [plaintiffs] was part of the regular business
of Roussos Construction” and “[Plaintiffs] were not engaged in a distinct occupation or
business.”
       Roussos’ counsel echoed those instructions during closing arguments: “the
Plaintiff has to prove on the first set of claims that Roussos Construction was the hiring
entity,” and “[y]ou heard no evidence in this case that Roussos Construction asked any of
the subcontractors to hire one person, ten people or anyone for Roussos Construction.”
Counsel also argued that even if Roussos Construction was the hiring entity, it satisfied
the ABC test.
       The jury returned verdicts in defendant’s favor on all counts.

                                        DISCUSSION

                                               I

                                     Instructional Error

       On appeal, plaintiffs contend the trial court erred in instructing the jury that before
the ABC test is considered, plaintiffs must first “prove they were hired by Roussos
Construction, Inc., or an agent of Roussos Construction Inc.” Plaintiffs argue this
instruction conflicted with the Dynamex decision and undermined its policy goals.
       Roussos responds that the ABC test is a classification test that places the burden of
proof on the “hiring entity.” An entity not involved in a worker’s hiring cannot be the
“hiring entity” and thus cannot be liable for misclassifying a worker. Roussos notes the
Dynamex court used the term “hiring entity” over 40 times, and therefore deemed the act
of hiring by the hiring entity a critical factor in determining liability for misclassifying a

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worker. Roussos also cites Henderson v. Equilon Enterprises, LLC (2019)
40 Cal.App.5th 1111 (Henderson) and Curry v. Equilon Enterprises, LLC (2018)
23 Cal.App.5th 289 (Curry) for the proposition that a hiring entity cannot be held liable
for misclassifying a worker it neither hired nor directed another entity to hire.
       We agree with plaintiffs.

       The Dynamex decision

       Wage orders set minimum wages, maximum hours, and basic working conditions
for employees in California. (Dynamex, supra, 4 Cal.5th at pp. 913-914.) In Dynamex,
our high court considered, “what standard applies . . . in determining whether workers
should be classified as employees or as independent contractors for purposes of
California wage orders . . . .” (Id. at p. 913.) After canvasing prior decisions
distinguishing employees from independent contractors, the court adopted the “ABC
test,” whereby a worker is considered an employee, “unless the hiring entity establishes
(A) that the worker is free from the control and direction of the hiring entity in
connection with the performance of the work, both under the contract for the performance
of the work and in fact, (B) that the worker performs work that is outside the usual course
of the hiring entity's business, and (C) that the worker is customarily engaged in an
independently established trade, occupation, or business . . . .” (Id. at p. 964.)
       In so concluding, the court explained that while the wage orders neither define
independent contractors nor specifically address their distinction from employees, the
wage orders define “employ” to mean “to engage, suffer, or permit to work.” (Dynamex,
supra, 4 Cal.5th at p. 926.) The “suffer or permit” language derived from early twentieth
century child labor statutes, which imposed liability “ ‘even when no common law
employment relationship existed between the minor and the defendant, based on the
defendant’s failure to exercise reasonable care to prevent child labor from occurring.’ ”
(Id. at p. 937 quoting Martinez v. Combs (2010) 49 Cal.4th 35 (Martinez).) By “ ‘[n]ot

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requiring a common law master and servant relationship, the widely used “employ, suffer
or permit” standard reached irregular working arrangements the proprietor of a business
might otherwise disavow with impunity.’ ” (Ibid.) “ ‘[This] historical meaning continues
to be highly relevant today: A proprietor who knows that persons are working in his or
her business without having been formally hired, or while being paid less than the
minimum wage, clearly suffers or permits that work by failing to prevent it, while having
the power to do so.’ ” (Id. at p. 939.)
       The Dynamex court concluded the “suffer or permit” standard applies to the
question of whether a worker is an employee or an independent contractor. (Dynamex,
supra, 4 Cal.5th at p. 943.) It further concluded the ABC test, adopted in a number of
jurisdictions, was most consistent with the history and purpose of the “suffer or permit to
work” standard in the wage orders. (Id. at pp. 955-957.) The court cited concerns that
the prior test, the multifactor Borello test, afforded greater opportunity to evade wage and
hour laws and made it difficult to determine how a particular category of worker would
be classified. (Id. at pp. 954-956.) The court added: “Treating all workers whose
services are provided within the usual course of the hiring entity’s business as employees
is important to ensure that those workers who need and want the fundamental protections
afforded by the wage order do not lose those protections.” (Id. at p. 960.)
       Reading Dynamex, we do not think a threshold hiring entity test was intended.
While the Dynamex court repeatedly refers to the party shouldering the burden as the
“hiring entity,” it never suggests that the term was intended to limit the scope of the test.
Rather, as the court explained, the ABC test is an application of the “suffer or permit to
work” standard, under which, “[a] proprietor who knows that persons are working in his
or her business without having been formally hired . . . clearly suffers or permits that
work by failing to prevent it, while having the power to do so.” (Dynamex, supra,
4 Cal.5th at p. 939, quoting Martinez, supra, 49 Cal.4th at p. 69 [some italics omitted].)

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       Interpreting the Dynamex court’s ABC test to include a threshold hiring test, with
the worker bearing the burden, would also run counter to the intent of the California wage
and hour laws, which “are remedial in nature and must be liberally construed in favor of
affording workers protection.” (Ward v. United Airlines, Inc. (2020) 9 Cal.5th 732, 754.)
We therefore conclude the term “hiring entity” was selected for its neutral connotations
and not as an unannounced prerequisite to the ABC test.
       A similar conclusion was reached in People v. Uber Technologies, Inc. (2020)
56 Cal.App.5th 266, 287 (Uber). There, the defendant ride sharing companies argued
that before the ABC test is considered there is a “threshold question in an ABC analysis,”
of whether they are hiring entities. (Ibid.) Rejecting the argument, the Uber court noted,
“[t]he Supreme Court went to great lengths to explain why the ABC test . . . derives from
the suffer or permit to work definition embedded in the wage orders it was construing.”
(Ibid.) Read in context, the term “hiring entity” was used “for its neutrality, so that it
covers both employment status and independent contractor status, and thus does not
presuppose an answer one way or another.” (Id. at p. 288.) It was not meant to have
“talismanic significance as a threshold indicator of employment status.” (Ibid.) The
court added that, “[w]hile the nature of the ‘hiring entity’ is always central to the
statutory analysis, that question in this case collapses into prong B of the ABC test, which
looks to whether the drivers’ work is ‘outside the usual course’ of defendants’
businesses.” (Ibid.) And “[m]ost fundamentally,” the court explained, creating a “step
zero” is inconsistent with Dynamex in that the ABC test creates “a streamlined analysis
readily amenable to application as a matter of law,” and which is a powerful enforcement
tool, consistent with the suffer or permit to work definition. (Id. at pp. 288-289.)
       Several months after the Uber decision handed down, our supreme court returned
to the ABC test, in Vazquez v. Jan-Pro Franchising International, Inc. (2021) 10 Cal.5th
944, 948 (Vazquez), where it considered whether Dynamex applies retroactively.
Concluding it does, the court reiterated that Dynamex was an authoritative judicial

                                              8
interpretation of the “suffer or permit to work” language. (Id. at pp. 948, 951.) And it
again quoted from Martinez that, “ ‘[a] proprietor who knows that persons are working in
his or her business without having been formally hired . . . clearly suffers or permits that
work by failing to prevent it, while having the power to do so.’ ” (Id. at p. 956, quoting
Martinez, supra, 49 Cal.4th at p. 69.)
       We agree with the reasoning in Uber. We also find it notable that Uber preceded
Vazquez by several months, and nowhere does Vazquez suggest there might be a hiring
entity threshold test. Indeed, in Vazquez, our supreme court used the term “hiring entity”
only when quoting Dynamex. Elsewhere it referred to the party shouldering the burden
under the ABC test as the “putative employer.” (See e.g. Vazquez, supra, 10 Cal.5th at
pp. 953, 956, 958 [“we reject the contention that it is unfair to putative employers to
apply the ABC standard to work settings that predate the Dynamex opinion”].)
       In sum, we conclude the ABC test, as articulated in Dynamex, does not include a
threshold hiring entity test.
       Defendant’s reliance on Henderson, supra, 40 Cal.App.5th 1111 and Curry, supra,
23 Cal.App.5th 289, for the proposition that a hiring entity cannot be held liable for
misclassifying a worker it neither hired nor directed another entity to hire, is also
unavailing. Both Henderson and Curry declined to apply the Dynamex ABC test to joint
employer liability claims. (Henderson at p. 1125; Curry at p. 314.) A joint employer
liability claim (or joint employment case) involves a person or entity that is alleged to
share the legal obligations of another employer by exercising significant control over the
other employer’s employees. (Martinez, supra, 49 Cal.4th 35, 50.)
       In Henderson, the plaintiff had been employed as a station manager of several
Shell-owned gas stations operated by Danville Petroleum. (Henderson, supra,
40 Cal.App.5th at p. 1114.) He alleged that while he had been hired by Danville, Shell
was liable as his joint employer because Shell “directly and indirectly” controlled wages,
hours, or working conditions of Danville employees. (Ibid.) Rejecting that argument, the

                                              9
court explained, “[t]he record is undisputed that Danville alone set Henderson’s wages,
determined which employees would be deemed exempt from overtime regulations, and
was solely responsible for Danville’s payroll function and compliance with labor laws.”
(Id. at p. 1121.) It further concluded that, “the ABC test in Dynamex does not fit
analytically with and was not intended to apply to claims of joint employer liability.” (Id.
at p. 1125.) It explained that, “[a]t bottom, Dynamex was concerned with the problem of
businesses misclassifying workers as independent contractor” to obtain economic
advantages — concerns not present with a joint employer claim, where “the worker is an
admitted employee of a primary employer, and is subject to the protection of applicable
labor laws and wage orders.” (Id. at pp. 1127-1128.) “Joint employer claims raise
different concerns, such as when the primary employer is unwilling or no longer able to
satisfy claims of unpaid wages and workers must look to another business entity that may
be separately liable as their employer.” (Id. at p. 1128.)
       Curry similarly involved a plaintiff who was hired by A.R.S. to manage a gas
station. (Curry, supra, 23 Cal.App.5th at p. 295.) A.R.S. had a contract with Shell to
operate Shell stations. (Id. at pp. 293-294.) The court concluded that while Shell, along
with A.R.S., provided her a place to work and equipment, that was insufficient to raise a
triable issue of fact as to whether Shell was her employer. (Id. at p. 308.) It could not be
reasonably concluded that Shell controlled the manner and means by which plaintiff
accomplished her work because it did not supervise her, it had no input on her skills or
the length of time she worked, and did not pay her; also Shell was not in the business of
operating service stations. (Ibid.) The court also concluded the ABC test was not
intended to apply in joint employment cases where the plaintiff was already an employee
of a primary employer that is “presumably paying taxes” and affording legal protections
to employees. (Id. at p. 314.)
       The instant case, however, is not a joint employment case. Plaintiffs are not
admitted employees of a primary employer: plaintiffs maintain they were solely Roussos

                                             10
employees, and the supervisors/subcontractors maintain plaintiffs were not their
employees. And by all accounts, plaintiffs were not provided the protections due
employees. Thus, this is not a case where the policy concerns of Dynamex are
inapplicable. Rather, this case goes to the heart of the Dynamex question: were plaintiffs
properly classified as independent contractors? Curry and Henderson are therefore
inapposite.
       Roussos, nevertheless, maintains that because plaintiffs were unlicensed, they are
presumed employees of the subcontractors who hired them. It cites in support cases
holding there is a conclusive presumption, under Labor Code section 2750.5 (statutory
section citations that follow are to the Labor Code), that a person employing an
unlicensed contractor is an employer. (See Cedillo v. Workers’ Comp. Appeals Bd.
(2003) 106 Cal.App.4th 227, 233; Mendoza v. Brodeur (2006) 142 Cal.App.4th 72, 77.)
But that presumes the supervisors/subcontractors were independent of Roussos —
ultimately a jury question. We also note that under section 2781, which codifies
Dynamex and took effect after trial, the Dynamex holding does not apply to a contractor–
subcontractor relationship in the construction industry — if the contractor demonstrates
“[t]he subcontract is in writing.” Here, none of the supervisors/contractors had written
contracts with Roussos prior to litigation.
       In sum, neither Curry nor Henderson nor the section 2750.5 presumption
convinces us that Dynamex is inapplicable or that it includes a threshold hiring entity test.
We therefore conclude the jury was misinstructed.

                                              II

                                         Prejudice

       Plaintiffs maintain they were prejudiced by the erroneous jury instruction. They
also ask that we direct the trial court to enter judgment as a matter of law, on counts 1

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through 4, averring that under the uncontroverted facts, none of the ABC test factors
could be met.
       To those points, Roussos maintains that other jury instructions explained or
clarified the challenge instruction. It points to an instruction that an employer is any
person who directly or indirectly, or through an agent or any other person, employs or
exercises control over the wages, hours, or working conditions of any person. It also
points to an instruction that if plaintiffs were hired by Roussos or an agent of Roussos,
they are presumed to be employees.
       While we agree with plaintiffs as to prejudice, we decline to direct a verdict.
       Instructional error in a civil case is prejudicial “where it seems probable” that the
error “prejudicially affected the verdict.” (Soule v. General Motors Corp. (1994)
8 Cal.4th 548, 580.) Concomitantly, “[a] judgment may not be reversed on appeal, even
for error involving ‘misdirection of the jury,’ unless ‘after an examination of the entire
cause, including the evidence,’ it appears the error caused a ‘miscarriage of justice.’ ”
(Id. at p. 574.)
       Under this standard, the instructional error was prejudicial as to counts 1 through
4. Requiring plaintiffs to prove, in effect, that Roussos directed an agent to hire them,
placed a significant obstacle before plaintiffs and altered the nature of the ABC test,
under which a worker is presumed to be an employee. No additional clarifying
instruction could change that. We therefore conclude the error was prejudicial.
       But we cannot agree that a directed verdict is warranted. Plaintiffs maintain that
liability for counts 1 through 4 attaches as a matter of law because overwhelming
evidence showed the floor installers were not free from Roussos’ control, Roussos is
indisputably a floor installation corporation, and no evidence showed plaintiffs had an
independent business or licenses.
       At trial, however, Roussos’ counsel argued at closing that the ABC factors were
not met. He argued there was no evidence Roussos exercised control over the plaintiffs’

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hours. Plaintiffs’ work was “outside … the usual course of business of Roussos
Construction,” because by law, Roussos cannot install floors. And as to plaintiffs being
customarily engaged in an established trade, occupation, or business, counsel argued:
“It’s such an established trade that the Contractor’s State Licensing Board issues a
separate license for it.”
       The record offers some support for those assertions. Roussos’s CEO testified that
he did not have significant control over the flooring installers. He testified that flooring
is as little as 40 percent of Roussos’s business. And he testifies that his contractor license
does not permit him to perform work involving a single trade: “I have to do more than
two trades.” There was also evidence of invoices, reflecting the purchase of materials by
one of the plaintiff installers, Miguel Osuna. The invoices reflect the purchaser as
“Osuna’s Carpet.” Osuna however testified it was not his company, “because I don’t
have a license with that name” and the retailer had put that name on the account.
       We are also mindful of the fact that the jury returned verdicts for Roussos on
counts 5 through 7. Those counts involved the Borello factors, and the jury was not
instructed that plaintiffs must first prove they were hired by Roussos Construction. As
our supreme court has explained Dynamex “did not depart sharply from the basic
approach of Borello . . . ,” and the ABC test factors are prominent factors in the Borello
test. (Vazquez, supra, 10 Cal.5th at p. 956.)
       Under these circumstances, we conclude the instruction error warrants reversal on
counts 1 through 4, but not a directed verdict.

                                             III

                                  Additional Contentions

       Finally, plaintiffs raise several cascading contentions. They argue that “[i]f this
Court reverses and finds that the Flooring Installers were misclassified as independent
contractors,” then a Labor Code violation has occurred for purposes of California’s

                                             13
Private Attorney General Act, or “PAGA.” Plaintiffs therefore ask that we remand with
instructions to conduct a jury trial on several factual questions pertaining to their PAGA
claim.
         Plaintiffs also ask that if we remand on the PAGA claim, that we reverse the trial
court’s order excluding three “subcontractor agreements” from evidence. Finally, they
ask that if we find Roussos liable on counts 1 through 4 that we remand with instructions
to determine an award of reasonable attorneys’ fees and costs upon finding of PAGA
liability.
         As we are not directing a verdict on counts 1 through 4, and as plaintiffs have not
alleged independent grounds for reversable error on their PAGA claim, count 8, we take
no action on these contentions.

                                        DISPOSITION
         We reverse the judgment on counts 1, 2, 3, and 4 and remand for a new trial on
those counts. In all other respects we affirm the judgment. The parties shall bear their
own costs on appeal.

                                                   HULL, J.

We concur:

RAYE, P. J.

HOCH, J.

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