California employers will be pleased to learn that the Ninth Circuit Court of Appeals recently held that a retail store reasonably believed that a freelance model who worked in irregular one- or two-day periods was not an “employee” under California law. Therefore, they found that the retailer’s good-faith defense—based on its view that the plaintiff was an independent contractor—defeated the model’s claim seeking penalties for failing to pay wages owed to an employee immediately at the conclusion of the employment relationship.
What happened in the case at issue?
In Bijon Hill v. Walmart, Inc., the plaintiff did modeling work for Walmart, appearing in ten photo shoots over the course of one year, which amounted to 15 nonconsecutive working days over the year. Through her modeling agency—Scout Talent Management Agency—Hill earned a daily flat rate for each day of modeling services. Scout sent Walmart invoices, which were payable within 30 days. Therefore, Hill did not necessarily receive payment right away after each job. The plaintiff claimed that Walmart violated the California Labor Code provision requiring employers to pay employees immediately upon termination, arguing that each of the ten photo shoots were ten separate instances of employment and that she was “discharged” at the end of each shoot and should have been paid upon discharge. Hill sought $540,000 in penalties.
California law allows employers to avoid such penalties if there is a good faith dispute that wages are due. In this case, Walmart argued that (1) Hill was not an employee at all, and so the statute did not apply, and (2) regardless of Hill’s actual employment status, it reasonably believed Hill was an independent contractor presenting a good-faith dispute about whether Hill was an employee, which barred penalties. Hill countered that an employer’s mere ignorance of the law should not permit an employer to avoid penalties, but the Ninth Circuit reasoned that the legislature allowed employers to escape penalties in genuine cases of uncertainty in the law and an employer’s good-faith mistake about a worker’s employment status could be a defense to waiting-time penalties.
The court explained that Walmart did not have to prove that Hill was an independent contractor to prevail—what mattered was whether Walmart had objectively reasonable grounds to believe that Hill was an independent contractor sufficient to support its good-faith defense and that no evidence showed bad faith. To analyze whether Walmart’s belief was reasonable, the Ninth Circuit evaluated Hill’s employment status to determine whether Walmart could not have reasonably believed Hill was an independent contractor based on the facts. In doing so, the court reinforced that the common law test set forth in the 1989 case S.G. Borello & Sons, Inc. v. Dep’t of Industrial Relations, should be applied to workers such as Hill, rather than the strict employment tests applied in California Industrial Welfare Commission (“IWC”) cases. Applying the Borello factors, the court found that though Hill showed Walmart had control over Hill’s work in some aspects, Walmart’s belief was reasonable that Hill was an independent contractor because of Hill’s business expenses, daily rate, and other facts. Therefore, Walmart’s good-faith defense applied and it avoided penalties.
What does this mean for California employers?
Though this case illustrates a rare win for employers to use the good-faith defense to avoid penalties, it also shows how vulnerable businesses can be to claims in this area and the unique risks associated with these issues:
- Penalties can be steep if owed— again, the worker in this case was asking for $540,000—so always carefully analyze employment status classifications in accordance with recent guidance.
- Classifying workers as independent contractors is tricky, subject to changing rules and interpretations, and can carry significant legal implications, including taxes, protected leave, overtime pay, benefits, and others, including potentially owing penalties under wage and hour laws, like in this case.
- The Borello factors apply to cases outside of the IWC to analyze whether a worker is an independent contractor or an employee, which is less strict. In addition to the right to control the employment relationship, Borello instructs courts to consider other factors, including: whether the worker is engaged in a distinct occupation or business, the kind of occupation and whether the work is typically performed with or without supervision, the skill required, whether the worker provides the required tools to perform the work, the length of time to perform the services, the method of payment, whether the work is critical to the employer’s regular business, and whether the parties believe they are creating an employment relationship.
As this case illustrates, it can be tricky to evaluate whether your workers are employees or independent contractors and exponentially expensive to make a mistake. However, by anticipating the issues and seeking proper guidance before a dispute arises, costly missteps can also be easily avoided. If you have questions about the implications of your workers’ employment status, classification issues, or how this case may impact your business, our team is here to help.
The legal issues impacting workplaces are ever changing (Employment Law in Motion!) and since publication, new or additional information not referenced in this blog post may be available. Employers should feel free to call on the Miller Nash team if you have questions or need assistance, and always consult with an attorney for legal guidance.