Employee or Independent Contractor?: Determining the Status of Pilots and Cabin Attendants, Part II – The California Perspective

In this second of a two-part series, Douglas Stuart, Aerlex litigator and labor law expert, examines the status of pilots and cabin attendants in light of the latest developments in the State of California and the different ways in which the federal and state governments view the status of workers.

Last month, we published an article discussing whether aircraft pilots and cabin attendants could be independent contractors based on a new United States Department of Labor (DOL) administrator’s interpretation regarding the application of the federal Fair Labor Standards Act (FLSA) to the misclassification of workers as independent contractors. In summary, the interpretation states the DOL’s unequivocal opinion that “most workers are employees,” under the FLSA, and;

• It fully adopts the “economic realities” test as the means by which the DOL will determine whether a worker is an employee or an independent contractor; and
• It minimizes, but does not ignore, the role of the employer’s “control” over the work performed by the worker.

At the end of our article, we promised to provide an analysis specifically relating the status of independent contractors in California. This is that analysis.

Does the new Federal DOL Interpretation Apply to California Workers?

In addition to the DOL’s interpretation under federal law, every state may have its own laws regarding the proper classification of workers and those state laws can be more stringent than federal law in favor of employee designation. Like federal law, California has no legal definition of “independent contractor,” and the determination as to whether a worker is an employee or independent contractor is decided on a case-by-case basis.

The California Division of Labor Standards Enforcement (DLSE) starts with the presumption that a worker is an employee. Labor Code Section 3357. This is a rebuttable presumption however, and the actual determination of whether a worker is an employee or independent contractor depends upon a number of factors. These factors comprise California’s version of the “economic realities” test as adopted by the California Supreme Court in the 1989 case of S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations. Unlike the federal economic realities test, the most significant factor to be considered in California is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker, both as to the work being done and the manner and means in which it is performed.

Formulated somewhat differently, according to California law, the “principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The putative employer’s right of control need not extend to every possible detail of the work. Rather, the relevant question is whether the presumptive employer retains “all necessary control” over the worker’s performance.

The California Supreme Court, in another decision, has further stressed that the pertinent question under California’s right-of-control test is “not how much control a hirer [actually] exercises, but how much control the hirer retains the right to exercise.”

No one consideration “is dispositive when analyzing employee/independent contractor status” under the California Supreme Court’s test. Still, while no one factor is dispositive, some factors are considered to be more important in ascertaining the extent of the putative employer’s right to control. For example, when evaluating the extent of a presumptive employer’s right to control, the Supreme Court has stressed that an employer’s “right to discharge at will, without cause” is “strong evidence in support of an employment relationship.” This is because the “power of the principal to terminate the services of the agent” without cause “gives him the means of controlling the agent’s activities.” The “worker’s corresponding right to leave is similarly relevant: ‘An employee may quit, but an independent contractor is legally obligated to complete his contract.'”

The putative employer’s right to control work details, while the primary factor, is not the only relevant consideration. Thus, the Supreme Court has also embraced a number of “secondary indicia” that may be relevant to the employee/independent contractor determination.

These additional factors include:

• whether the one performing services is engaged in a distinct occupation or business;
• 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;
• the skill required in the particular occupation;
• whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
• the length of time for which the services are to be performed;
• the method of payment, whether by the time or by the job;
• whether or not the work is a part of the regular business of the principal; and
• whether or not the parties believe they are creating the relationship of employer-employee.

There are also five additional factors (some overlapping or closely related to those outlined immediately above), taken from the federal test of employment under the Fair Labor Standards Act (FLSA), that may help shed light on a putative employee’s proper job classification.

These additional factors are:

• the alleged employee’s opportunity for profit or loss depending on his managerial skill;
• the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;
• whether the service rendered requires a special skill;
• the degree of permanence of the working relationship; and
• whether the service rendered is an integral part of the alleged employer’s business.

Consequently, in California and in jurisdictions following federal law, it is necessary to closely examine the facts of each service relationship and then apply the law to those facts.

It is important to remember in determining whether a worker is an employee or independent contractor that neither the existence of a written agreement purporting to establish an independent contractor relationship, nor the fact that an employer reports the worker’s compensation on an Internal Revenue Service 1099 income form rather than a W-2 wage statement is determinative with respect to independent contractor status.

Like the recent interpretation from the DOL, in June 2015 the California Labor Commission (CLC) ruled that an Uber driver was an employee, not an independent contractor. The reasoning behind the CLC decision was consistent with the DOL’s interpretation, deciding that the Uber driver’s work was “integral to Defendant’s business. Without drivers such as Plaintiff, Defendants’ business would not exist.” The Commission also determined that Uber controlled the tools that the drivers use and approved drivers are permitted to use Uber’s intellectual property. The Commission did not heavily weigh the fact that the driver used her own vehicle, paid her own business expenses, including gas, tolls and vehicle maintenance, had her own corporation, and decided when and where to work. This ruling is technically not law applying to matters other than this Uber driver. Because Uber has filed an appeal in state court, it may be months or longer until the California appellate courts finally decide the issue.

In another court case involving Uber, a class action lawsuit was certified by a federal court judge in San Francisco shortly after the CLC ruled, meaning that certain Uber drivers can sue the company as a group over their employment status.

The significance of these rulings should not be overlooked, as it shows California may be following the nationwide trend toward classifying more workers as employees. If your company uses or is considering using independent contractor pilots, cabin attendants or mechanics in California, it is imperative that you ascertain whether you are in compliance with both state and federal law by doing a thorough analysis using the factors enumerated above as they apply to the specific scenario for which you are considering using the workers.

To contact Douglas Stuart about labor or litigation issues, please call 310-392-5200 or write to dstuart@aerlex.com.