The Dueling Banjos: Two Recent Supreme Court Solos Echo Through California Employment Law

The courts in the United States often zig and zag in different ways, as some judges lean one way or another. The result is like dueling banjos, with melodies resonating for years as employment lawyers in Los Angeles pick up their own instruments to mimic the rhythm to their own case. Two employment law “solos” are discussed in this blog (to clarify, neither of these cases have anything to do with music – we just thought banjos make employment law fun).

The first tune was played by the California Supreme Court. It clarified an evolving stance on the independent contractor-employee, in a way that favors prospective plaintiff-employees. In  Dynamex (April 30, 2018), two delivery drivers sued a delivery company on behalf of a potential class. The drivers alleged they had been misclassified as independent contracts rather than employees.

In affirming the lower court’s denial of a motion to dismiss the class certification, the California Supreme Court laid out the “ABC” test that determines whether a worker is an independent contractor. To establish the worker is an independent contractor, the hiring party must prove: (A) the worker is free from the direction and control of the hirer (both per any agreement and in reality); (B) the worker performs work outside the usual course of the hirer’s business; and (C) the worker must normally work in the same “independently established trade” as the work they are doing for the hirer.

To illustrate part (B) and answer the question of “what constitutes work outside the usual course of business?”, the court considered a few examples. In the case of a retail store hiring a plumber to repair a leak, the plumber is an independent contractor, as it is clear plumbing work is outside the course of a retail store’s normal business. Contrast this example with that of a cake decorator who is hired by a bakery on a regular basis to customize cakes. In this example, the worker is part of the hirer’s usual business, and that cake decorator should be considered an employee.

Although the California Supreme Court was careful to explain this decision only applies to the “one specific context” of California wage orders, the court’s reasoning will doubtlessly be repeated in other contexts. This is music to the ears of employees and plaintiff-side practitioners, who will now argue the guidance controls in other contexts, too. Plink, plink, plunk!

With one song over, in comes the United States Supreme Court to the employment arena to one-up the California court with its own piece, albeit on a different topic. A few weeks after Dynamex, the high Court ruled arbitration clauses in employment contracts can be used to prevent class or collective actions in federal courts. In Epic Systems (May 21, 2018), the Court concerned three consolidated cases which, despite different underlying facts, shared the same core issue: an employer and employee entered into an employment agreement which contained an arbitration clause. The question was whether the employees were required to resolve their disputes individually in arbitration.

The Court acknowledged that, while the wisdom of the policy was certainly debatable, the law as written is clear – the Federal Arbitration Act instructs federal courts to enforce arbitration agreements, including those with terms for individualized proceedings.

The employees argued there were legal grounds for revocation and that the Arbitration Act’s “saving clause” exception should apply. The Court explained this clause only applies if the grounds for revocation are defenses available for “any” contract (like duress). Here the employees’ objection was that they required individualized arbitration proceedings, which is not the type of defense applicable to “any” contract.

The employees also argued the National Labor Relations Act (NLRA) overrides the Arbitration Act by allowing for “other concerted activities” for “mutual aid or protection” which, the employees argued, should include class actions. The Court was dismissive of this argument, too. Given the other examples of concerted activities listed in the statute (like collective bargaining), and given the employees’ claims were made under a completely different statute (the FLSA), the Court doubted Congress intended to “tuck[] into the mousehole of [NLRA’s] Section 7’s catchall term an elephant that tramples the work done by these other laws [i.e., the FLSA].” Tin, tin, twang!

Epic Systems can be viewed as a more employer-friendly decision and continues a line of Supreme Court decisions upholding the Arbitration Act’s validity against other federal statutes. This symphony will undoubtedly be heard across the country, as millions of employment agreements in the United States are affected.

Meanwhile, the dueling banjos that are the courts of this nation continue to play on.