Court Opinion

ID: 9797614
Source: CourtListenerOpinion
Date Created: 2023-08-31 04:26:03.950299+00
Date Added: 2024-06-11T08:57:40.278617
License: Public Domain

BROWN, J., Concurring and Dissenting.
This is a case of the tail wagging the dog—with a vengeance. The majority purports to decide only whether real parties in interest1—workers leased by the Metropolitan Water *510District (MWD) from independent labor suppliers-—must be enrolled as members of the California Public Employees’ Retirement System (CalPERS). In reality, the majority has uncritically applied an arguably obsolete common law definition of “employee” to a new labor paradigm and conferred an authority on CalPERS—one never accorded by the Legislature—to unilaterally determine the legality of public employers using leased workers. Proper exercise of our role in defining the common law and according deference to the legislative and executive branches should compel the court to decline plaintiffs’ invitation to remake the civil service in the image of the pension system. I respectfully dissent.
I.
In its extensive case management order, the trial court considered threshold “Issue A”: “Whether [MWD] is mandated by the [Public Employees’ Retirement Law] to enroll all common law employees in CalPERS.” Plaintiffs reason that, under California’s common law definition of “employee,” they are unquestionably MWD employees. Therefore, if the Public Employees’ Retirement Law (PERL) incorporates the common law test into its own definition of “employee,” plaintiffs are entitled to CalPERS enrollment.
The trial court permitted CalPERS to file a complaint in intervention. Consistent with plaintiffs’ interpretation, CalPERS sought declaratory relief that would (1) interpret the term “employee” in the PERL in accordance with the common law definition of that term, and (2) affirm CalPERS’s role as the first arbiter of whether an individual is an employee of a public agency for purposes of applying the PERL.
The majority purports only to resolve the threshold issue; but, of course, the answer is not so simple. While enrollment in CalPERS does not directly resolve whether plaintiffs are MWD’s employees for nonretirement purposes, or even expressly determine their entitlement to CalPERS benefits, it inevitably gives considerable momentum to their broader claims.
Thus, despite its disclaimers, the majority’s ostensibly narrow interpretation of the PERL is effectively dispositive of the more significant underlying question of plaintiffs’ employment status. To say that a covered employee is any employee CalPERS says is a covered employee is a tautological response that not only rewrites the statute, it alters the whole purpose of the pension law.
II.
The majority’s approach has several shortcomings. First, it conflicts with and undermines the purpose and intent of the PERL. Second, it rewrites the *511contractual relationship between MWD and CalPERS, between MWD and the labor suppliers, and between the leased workers,and the labor suppliers while foisting on MWD an employment relationship it specifically contracted to avoid. Third, it presupposes, without analytical support, that the current common law test of “employee” is appropriate for determining the status of leased workers in this, or any other, context. Finally, and in conflict with the separation of powers doctrine, it preempts the Legislature from determining whether and in what manner to treat leased workers differently in the public employment context.
A. Purpose and Intent of the PERL
“[O]ur first task in construing a statute is to ascertain the intent of the Legislature so as to effectuate the purpose of the law.” (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387 [241 Cal.Rptr. 67, 743 P.2d 1323].) “The Legislature enacted the Public Employees’ Retirement Law (Gov. Code § 20000 et seq.), ‘to effect economy and efficiency in the public service by providing a means whereby employees who become superannuated or otherwise incapacitated may, without hardship or prejudice, be replaced by more capable employees . . . .’ ” (Pearl v. Workers’ Comp. Appeals Bd. (2001) 26 Cal.4th 189, 193 [109 Cal.Rptr.2d 308, 26 P.3d 1044].) Courts also deem civil service pensions to serve as an inducement to competent persons to enter and remain in public service. (Packer v. Board of Retirement (1950) 35 Cal.2d 212, 217 [217 P.2d 660].)
Neither the explicit nor the implicit purpose of the PERL is served by a determination that leased employees must be enrolled in CalPERS. These employees have chosen to work for private employers, without additional pension inducement and subject to termination at will when their services are no longer needed. The rule of liberal construction applicable to the PERL serves to effectuate the legislative intent of securing and retaining competent individuals for public sector employment in the first instance. It does not support a construction contrary to the statutory purpose, endorsing eligibility for workers clearly outside the PERL’s intent. (See In re Retirement Cases (2003) 110 Cal.App.4th 426, 473 [1 Cal.Rptr.3d 790].) In such circumstances, the court should approach its interpretive task with utmost circumspection rather than with the blithe assumption that a superficial construction suffices.
Indeed, while arguing that the purpose of the PERL should be liberally construed, plaintiffs, seconded by CalPERS, invoke a canon of construction intended to limit the scope of legislative enactments: that, as a general rule, statutes will not be interpreted to alter common law rules absent a clear statement to that effect. “ ‘ “A statute will be construed in light of common law decisions, unless its language ‘ “clearly and unequivocally discloses an *512intention to depart from, alter, or abrogate the common-law rule concerning the particular subject matter . . . .” [Citations.]’ [Citation.]” ’ ” {California Assn, of Health Facilities v. Department of Health Services (1997) 16 Cal.4th 284, 297 [65 Cal.Rptr.2d 872, 940 P.2d 323].) Even assuming the legal and analytical validity of this court-formulated precept in ordinary circumstances where it occasions no great harm (see Corrigan & Thomas, “Dice Loading” Rules of Statutory Interpretation (2003) 59 N.Y.U. Ann. Surv. Am. L. 231), plaintiffs here ask the court to rely on it to undermine a clearly expressed legislative purpose, contrary to the court’s primary statutory construction directive.
B. Leased Workers and The Common Law Test Of “Employee”
With respect to the common law, plaintiffs’ and CalPERS’s argument contains a second fundamental analytical flaw—the uncritical assumption that “employee” as defined under the current common law test applies without further consideration to leased workers.
Plaintiffs, and by its language the majority (see maj. opn., ante, at pp. 498, 503, 504—505), assume the PERL incorporates a static common law definition of “employee” under which control over performance of the work is the most significant factor. This assumption erroneously ignores, or disregards, the essence of the common law: the evolution of court-crafted jurisprudence to address new circumstances and legal questions. Leased workers present a new paradigm, a three-sided labor relationship in which control has been expressly separated from other aspects of employment.
In support of their position, plaintiffs rely heavily on the Restatement Second of Agency (1958) (Restatement), section 220, and its apparent focus on the factor of control. Section 220, subdivision (1), defines a servant as “a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.” Section 220, subdivision (2)(a) lists 10 factors relevant to distinguishing employees from independent contractors, the first factor being “the extent of control which, by the agreement, the master may exercise over the details of the work.”
This court has previously quoted with approval these provisions of the Restatement and characterized control as “the principal test” (Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946 [88 Cal.Rptr. 175, 471 P.2d 975] (Tieberg)) in defining employment for purposes of the Unemployment Insurance Code. (See also McFarland v. Voorheis-Trindle Co. (1959) 52 Cal.2d 698, 704-706 [343 P.2d 923]; Industrial Ind. Exch. v. Ind. Acc. Com. *513(1945) 26 Cal.2d 130, 135 [156 P.2d 926] [same in workers’ compensation context].) At the same time, we recognized that control is not dispositive and that several other “ ‘secondary elements’ ” (Tieberg, at p. 950) may be relevant in assessing employment status. (Id. at pp. 949-950; see also S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 352 [256 Cal.Rptr. 543, 769 P.2d 399]; Laeng v. Workmen’s Comp. Appeals Bd. (1972) 6 Cal.3d 771, 777-778, fn. 7 [100 Cal.Rptr. 377, 494 P.2d 1].) Moreover, the court has never considered how these various elements would affect the status of leased workers. It is far from clear the same factors would predominate.
Indeed, the Legislature has taken the lead in suggesting that a distinct rule should apply to leased workers. Section 606.5, subdivision (b), of the Unemployment Insurance Code provides that, for purposes of that code, the common law control test governs employee status in all cases except that of leased workers, expressly recognizing they present a separate case. In other contexts as well, the Legislature has made .independent provision for worker leasing. (See Lab. Code, § 3602, subd. (d) [addressing workers’ compensation coverage for leased workers]; see also Cal. Code Regs., tit. 2, § 7286.5, subd. (b)(5) [defining employment for purposes of workplace discrimination against an employee of a “temporary service agency”]; cf. 29 C.F.R. § 825.106(b)-(e) (2003) [designating the leasing employer as the employer for purposes of family leave].) Even CalPERS’s own handling of the issue indicates—contrary to the position it takes in this litigation—that it has heretofore recognized worker leasing as a distinct phenomenon calling for development of a new “system-wide approach”; and the State Administrators’ Handbook, from which CalPERS obtained its working summary of the common law control test, elsewhere indicates special considerations apply in these circumstances.
Undue emphasis on control assumes an overly reductionist approach to the common law. However close a link between control over the way the work is performed and employment in other contexts, in the case of worker leasing, control is relatively insignificant because the purpose of the labor relationship is to separate control from other terms of employment. Moreover, the worker enters into and accepts, generally expressly, this three-sided labor relationship fully aware of its purpose. As the Restatement recognizes, a relevant determinative of an employer-employee relationship is “whether or not the parties believe they are creating the relation of master and servant.” (Rest., § 220, subd. (2)(i); see also Tieberg, supra, 2 Cal.3d at p. 949 [88 Cal.Rptr. 175. 471 P.2d 75].).) Since the parties’ intent dominates the relationship among worker, labor supplier, and labor hirer, this element logically should weigh more heavily than control of work performance in determining employment status. *514The Restatement is at best a snapshot of the common law as it existed in 1957. Because it follows the law—summarizing consensus and organizing relevant legal principles—it cannot serve as a definitive guide to assessing a new labor structure, one which reflects unprecedented economic, technological, and demographic transformations in our society. This does not render the PERL, with respect to the common law definition of employment, a moving target. The fundamental common law conception of employment has not changed. Rather, to the extent their significance varies from the original norm, the relevant factors must be reweighed in this new context, consistent with the intent of the parties.
The Restatement was formulated at a time when employee leasing in its purest form did not even exist. Thus, it differentiates only between employees and independent contractors, not employees and leased workers. Nor does the Restatement or our cases dealing with employee lending discuss the paradigm of labor supply and consumption. (See, e.g., Kowalski v. Shell Oil Co. (1979) 23 Cal.3d 168, 174 [151 Cal.Rptr. 671, 588 P.2d 811].) For example, the labor relationship at issue here differs distinctly from that of one employer lending another employer one of its skilled employees for an occasional task. (See, e.g., Rest., § 227, com. c, illus. 3, p. 502.) Contrariwise, a labor supplier is in the business of providing workers to consumers temporarily in need of certain services. The latter situation represents an entirely new labor relationship in which control of the work is exclusively within the purview of the labor consumer; and, as all parties contractually agree, every other aspect of employment is exclusively within the purview of the labor supplier. Common law rules that evolved to address the traditional two-sided labor paradigm are simply inapposite in this context.
Moreover, the Restatement developed its definition of “employment” specifically in the context of assigning tort liability to employers under the doctrine of respondeat superior. Here, the predominant consideration is the statutory purpose of the PERL, which “is to effect economy and efficiency in the public service by providing a means whereby employees who become superannuated or otherwise incapacitated may, without hardship or prejudice, be replaced by more capable employees” (Gov. Code, § 20001) and to attract the best employees to public service. (Packer v. Board of Retirement, supra, 35 Cal.2d at p. 215.) These statutory purposes are very different from the question of assigning tort liability, a question plainly more closely aligned with the common law control test than with pension entitlement. (Cf. Santa Cruz Poultry, Inc. v. Superior Court (1987) 194 Cal.App.3d 575 [239 Cal.Rptr. 578] [labor consumer is employer of leased worker for purposes of workers’ compensation law].) There is no logical reason control should determine employment status in the latter circumstance even if it does in the former, particularly when the parties have expressly separated control from every other aspect of employment.
*515In sum, ultimately the courts, not the Restatement, delineate the evolution of the common law definition of “employee” and identify the factors that should assume primary significance in any particular worker context.
Uncritical application of the Restatement’s control test fails to recognize that the leased worker of today is unlike the lent employee of 1958. In Vizcaino v. United States Dist. Ct. for the Western Dist. of Wash. (9th Cir. 1999) 173 F.3d 713 (Vizcaino), the Ninth Circuit Court of Appeals considered whether leased workers (temporary agency employees) who provided services to Microsoft were employees for purposes of participation in Microsoft’s employee stock purchase plan. The court conceded “that the assessment of the triangular relationship between worker, temporary employment agency and client is not wholly congruent with the two-party relationship involving independent contractors.” (Id. at p. 723.) Nevertheless, the court applied the Restatement—with its dispositive emphasis on control—as a fixed body of law, failing to recognize the common law as an organic element of the law intended to adapt itself to new circumstances. (See also Wolf v. Coca-Cola Company (11th Cir. 2000) 200 F.3d 1337, 1340-1341 [leased worker may be employee of labor consumer for purposes of Employee Retirement Income Security Act]; Burrey v. Pacific Gas & Electric Company (9th Cir. 1998) 159 F.3d 388, 391-392.)
In my view, the better rule is expressed in Roth v. American Hospital Supply Corp. (10th Cir. 1992) 965 F.2d 862 (Roth), in which the court considered the claim of a leased worker that, for purposes of the Employee Retirement Income Security Act (ERISA; 29 U.S.C. § 1001 et seq.), he was an employee of the business that leased his services. The court found that ERISA incorporated the common law definition of employee and specifically section 220 of the Restatement. {Roth, at p. 866.) However, in applying the common law definition in the context of worker leasing, the court noted that “[t]he issue ... is one not squarely addressed by the common law test. . . .” (Id. at pp. 866-867.) “Many of the common law factors are, unsurprisingly, inapplicable to this inquiry.” (Id. at p. 867.) Under the circumstances, the court concluded that control over the work of the leased worker was less significant than the clear intent of the parties. (See also Capital Cities/ABC, Inc. v. Ratcliff (10th Cir.) 141 F.3d 1405.)
Accordingly, the role of the court should not be to judge the propriety of a labor relationship otherwise permitted by law, but to effectuate the intent of the parties, particularly one they all knowingly and intentionally accept. Here, since MWD intended to avoid entering into an employer-employee relationship with plaintiffs, and they, in turn, willingly accepted their jobs on the terms offered, the courts should recognize their mutual intent as the principal consideration in determining plaintiffs’ employee status. Assuming MWD did *516not actively mislead plaintiffs, they should not be allowed after the fact to redefine the agreed-upon terms of the labor relationship. As the court in Roth explained, where parties knowingly and intentionally separate control over work performance, a court should not override that intent. (Roth, supra, 965 F.2d at p. 868.) This does not “remake the law to conform to MWD’s hiring practices” (maj. opn., ante, at p. 497), but discharges the court’s responsibility to reexamine and develop the common law in new circumstances. (See Llewellyn, The Common Law Tradition (1960) pp. 293-294.)
Contrary to the fundamental precepts of the common law, the majority here views the question presented in statutory isolation, focusing on the PERL and refusing to assess the unique position of leased workers. Like the lower courts, the majority erroneously views worker leasing as bilateral. But by definition this is a three-party labor relationship, the very purpose f which is to separate control over work performance from every other aspect of employment and thus realign the parties’ relationship whereby labor consumers are not employers. The majority’s failure to recognize the legal significance of this distinct labor structure arbitrarily adjudicates the obligations of the parties contrary to their original expectations.
C. Contractual Impairment
In this regard, the majority also fails to consider the impact of its holding on contractual rights and expectations. While it disclaims the power “to remake the parties’ agreement” (maj. opn., ante, at p. 497), its analysis accomplishes exactly that. Given the contractual relationship between MWD and CalPERS, their respective conduct over the course of nearly 60 years is highly relevant to determining their understood intent. (See 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 689, pp. 622-623.)
For purposes of PERS entitlement, CalPERS has heretofore only used the common law control test to distinguish independent contractors. Its long-term dealings with MWD give no indication that CalPERS regularly or consistently applied any version of that test to leased workers or that it had ever developed a formal, system-wide policy with respect to leased workers. Similarly, nothing in the record indicates CalPERS had, prior to this litigation, definitively interpreted the PERL as including leased workers within its definition of “employee.” Nor did MWD understand the PERL in that way.
Thus, even if MWD’s leased workers are employees for purposes of the PERL, that holding cannot apply retroactively if the parties’ conduct indicates they never interpreted their contract in that way. The majority’s contrary implication imposes on MWD a potentially huge liability it had no basis for anticipating. (See dis. opn. of Baxter, L, post, at p. 521.) If the historic *517understanding of the parties with respect to the PERL is at odds with the court’s present construction of that law, then the contract involves a mutual mistake of law and is, to that extent, subject to rescission. (1 Witkin, Summary of Cal. Law, supra, Contracts, §§ 377, 378, pp. 344-345.) Any other conclusion would bind MWD to a contractual term that no party bargained for or understood to exist. Nevertheless, the majority completely ignores the legal significance of this contractual history.
D. Preemption of the Legislature
Noting that the PERL contains “no broad exclusion for long-term, full-time workers” (maj. opn., ante, at p. 497), the majority declares that “[a]ny change in the PERL to accommodate such long-term temporary hiring must come from the Legislature, not from this court, which cannot remake the law to conform to MWD’s hiring practices.” (Ibid.) With due respect, this completely inverts the statutory analysis. Given the historical perspective of leased workers, there is no basis for finding the PERL would have contemplated leased workers in the first instance; thus, there would be no reason for the Legislature to refer to them, either by inclusion or exclusion. In other words, contrary to the majority’s unsupported assumption, their absence from the statutory scheme has no legal significance. By investing this purported omission of any reference to leased workers with legal substance, the majority itself rewrites the statute—inferring that public employers are prohibited from using leased workers outside the purview of the PERL.
The specific question raised in this case is whether a public agency that has purchased labor from a labor supplier in lieu of hiring its own employees must enroll these workers in CalPERS. Under this new three-sided model, the labor consumer is no longer the employer of the worker. Instead, the employment contract lies between the worker and a third party—a labor supplier—that separately contracts with labor consumers to satisfy their labor needs. In the abstract, this new labor paradigm appears to be simply a matter of personal choice and private agreement. Disputes, however, arise when workers who have willingly entered into employment contracts with labor suppliers then seek the rights and benefits of employment with the labor consumers. In essence, these workers ask the courts to redraw the boundaries of the three-sided relationship.
That task is clearly one the court should defer to the Legislature, which can better assess the policy implications and balance the respective interests of the public and individual workers. Indeed, the Legislature has already taken action where it has thus far deemed it appropriate. (See Lab. Code, § 3602, subd. (d); Unemp. Ins. Code, § 606.5, subd. (b); see also Cal. Code Regs., tit. 2, § 7286.5, subd. (b)(5).) In effectively subverting the parties’ deliberate *518effort to separate control from employment, the majority ignores this express validation of employee leasing as an acceptable, and presumably desirable, economic innovation. Contrary to the implication of the majority’s analysis, the Legislature has already determined that control over work may be legally separable from employment. The majority asserts no basis, other than a legislative vacuum, for finding that the two are inseparable in the context of the PERL, particularly given the PERL’s vague definition of “employee.”
The PERL does not mention the common law control test. This test becomes part of the statutory scheme only by virtue of judicial interpretation. Thus, while plaintiffs argue the PERL incorporates the same common law rule that applies outside the context of the PERL—they ignore the fact that nothing in the common law rule prohibits a labor consumer from leasing workers—and having control over their work—without thereby becoming an employer. Any other interpretation of the common law would bring it into conflict with the Legislature’s express approval of employee leasing.
Moreover, given the policy considerations, it should be for the Legislature, not this court, to address the narrower question of whether a public agency should be permitted to use leased workers to meet its labor needs. Unlike the broader proposition of using leased workers generally, that narrower question raises distinct concerns because these workers can provide a public agency with a means to avoid certain costs and burdens that apply exclusively in the public employment context, such as merit selection requirements and the possibility of suits under 42 United States Code section 1983. For that reason, the Legislature might reasonably place restrictions on public agencies as regards their use of leased workers. But, that is a legislative, not judicial prerogative. Whatever reservations we may harbor in this regard, the legislative process should be allowed to work. If limitations are appropriate, we must assume that the Legislature will act accordingly. Until that time, the court’s function is to develop the common law to meet the changing circumstances of the workplace.
Contrary to the majority’s implication, recognizing a special rule for employee leasing does not carve out an exception to the PERL’s definition of “employee” without any basis for such an exception in the statutory language. (Cf. Gov. Code, §§ 20300 [excluding independent contractors], 20502 [allowing for contractual exclusion of specified groups by contracting agencies].) Rather, in identifying a special rule applicable to leased workers, this court would be construing the common law, not the PERL, which incorporates the common law.
This case is not a referendum on the legality, morality, or any other aspect of public agencies’ utilizing leased workers to supplement their workforce. *519That question is completely separate from the one the majority purports to answer, one that implicates policy concerns principally within the legislative purview and one the Legislature has yet to directly address in this context. Given the legislative vacuum, this court should be wary of arrogating to itself or CalPERS the authority to determine whether this new class of workers is entitled to CalPERS membership.
III.
In sum, I do not think the Legislature intended to strike a fatal blow to worker leasing when, in 1943, it first enacted the PERL’s rather vague definition of public agency employee. More likely, it did not even consider the issue at that time. When it did consider the issue 43 years later in defining the employer-employee relationship in another statutory context, the Legislature gave its imprimatur to employee leasing by making express provision for it. This latter point, more than any other, should settle the issue before us. The common law definition of “employee” cannot work to foreclose an innovative labor relationship that the Legislature has explicitly recognized. Rather, in deference to and consistent with that legislative approval, we should interpret the common law to accommodate worker leasing by adjusting the relevant test to reflect the singularity of this new labor relationship, one in which the control factor assumes less, and the intent of the parties greater, significance.
I agree with the majority’s rejection of MWD’s argument that subdivision (b) of Government Code section 20028 “should be read as containing the same control-of-fund limitation as section 20028, subdivision (a).” Such an interpretation is unsupported by the statutory language (see maj. opn., ante, at p. 501) and would improperly require this court to act in a legislative capacity. (Id. at p. 497.) Nevertheless, the “foundational” principle cited by MWD and its amici curiae—that CalPERS enrollment and CalPERS benefits should not be available to workers unless they have received “compensation” from a CalPERS employer—remains logically compelling and is the only position consistent with the express purpose of the pension scheme.
Therefore, even if the majority’s determination that the PERL’s definition of “employee” incorporates California’s common law is correct, I would also conclude that the common law factors that are relevant to determining the existence of an employer-employee relationship do not have the same weight in every context, and that in the context of worker leasing, control over the manner in which the work is performed is not determinative of an employment relationship and does not override the express intent of the parties.2 *520Thus, while I agree MWD is mandated by the PERL to enroll all common law employees in CalPERS, I also conclude, contrary to the majority’s analysis, that a leased worker is not a common law employee and that the superficial answer to Issue A is correct but incomplete. A proper analysis of the underlying question is critical to the resolution of this litigation. For this reason, I would disclaim what will surely be the ultimate effect of the majority’s analysis. Rather, I would address the question directly and discharge this court’s fundamental obligation to develop the common law in light of changing circumstances.

 In the action below, real parties in interest were the plaintiffs and respondent Metropolitan Water District was the defendant. For clarity, I will refer to the parties by these terms.

 On this basis, I would disagree with CalPERS’s long-standing conclusion that the PERL incorporates the 20-factor federal test into its definition of employee. (See Yamaha Corp. of *520America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7-8 [78 Cal.Rptr.2d 1, 960 P.2d 1031] [“[T]he binding power of an agency’s interpretation of a statute ... is contextual .... [][]... [I]t may be helpful, enlightening, even convincing. It may sometimes be of little worth. [Citation.]”].) First, nothing in the PERL indicates the applicability of federal law in this context; and our decisions discussing the common law definition of the employer-employee relationship nowhere indicate approval of the 20-factor federal test. More importantly, the federal test focuses exclusively on control, and for the reasons stated above, I see no indication that the Legislature intended control to be determinative of employment in the case of a leased worker, thereby prohibiting for purposes of the PERL what the Legislature expressly approved in the Unemployment Insurance Code.