Anschutz Entertainment Group (AEG) contracted with Levy Premium Foods to manage the food and beverage services at several entertainment venues located in southern California. Levy, in turn, contracted with Canvas Corporation to provide 1099 contract laborers who sold food and beverages at AEG venues. Neither AEG nor Levy had any direct contract with the laborers. Nevertheless, in 2013, several laborers filed a wage and hour class action against AEG, Levy and Canvas for failure to pay minimum wage and willfully misclassifying them as independent contractors in violation of Labor Code section 226.8. They argued that because AEG and Levy exercised direct control over their work they were “joint employers” along with Canvas and also liable for wage and hour violations as well as civil penalties for up to $25,000 for each of the 4100 potential class members for misclassifying them as independent contractors.
Labor Code Section 226.8, subdivision (a)(1) states: “(a) It is unlawful for any person or employer to engage in any of the following activities: [¶] (1) Willful misclassification of an individual as an independent contractor.” “Willful misclassification” means “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.” (§ 226.8, subd. (i)(4).) It unlawful for an employer to “engage in” the act of “voluntarily and knowingly misclassifying [an] individual as an independent contractor.”
The trial court found that the inclusion of the words “engage in” demonstrated a legislative intent to limit the statute to employers who made the actual decision to misclassify. In effect, the court equated the term “engage in” with the term “commit,” concluding that subdivision (a)(1) was limited to employers who commit the act of willful misclassification. The appellate court noted that the ordinary definitions of “commit” and “engage” are not equivalent. “Commit” is commonly defined to mean “to do, perform.” “Engage” has a broader meaning, commonly defined to mean to “involve oneself; to take part in” or “to participate.” Thus, an individual or entity can “engage” in an act without actually having “committed” that act.
“We presume,” said the court, “the Legislature intended to penalize a broader class of employers that includes those who, through their acts or omissions, have knowingly participated or involved themselves in the willful misclassification decision. As applicable here, a joint employer who knowingly acquiesces in a co-joint employer’s decision to willfully misclassify their joint employees has necessarily “involved” itself in that misclassification decision.”
So, what does this mean for joint employers in this situation? It means a joint employer may not be held liable under section 226.8 based solely on the acts or omissions of a co-employer. To obtain civil penalties under section 226.8 plaintiffs must demonstrate not only that AEG and Levy were joint employers, but also that they each engaged in the act of voluntarily and knowingly misclassifying the plaintiffs. The mere fact that Canvas engaged in such conduct is insufficient. Furthermore, individual employees do not have a private cause of action top collect these penalties other than by way of a Private Attorney General Action (PAGA) on behalf of California.
What about the claims for unpaid wages and overtime? Each joint employer is liable to its employees for unpaid minimum wage and overtime compensation because Labor Code Section 1194 imposes a duty on every employer, whether singular or joint, to ensure its employees receive minimum wage and overtime compensation.
So, once again, here is a lesson learned the hard way for these defendants. True independent contractors hired to perform duties incidental to the business of the employer is a rarity. Be informed. Call a knowledgeable employment attorney before this issue becomes a problem.Phillip J. Griego & Associates 95 South Market Street, Suite 520 San Jose, CA 95113 Tel. 408-293-6341 East Bay 925-364-4655
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