62 Cal.App.5th 59
Cal. Ct. App.2021Background
- Vendor Surveillance Corporation (VSC), a subsidiary of Verify, maintained a database of "project specialists" who performed aerospace source inspections and classified them as independent contractors for 2011–2013 (audit years).
- Verify sourced clients and negotiated work; VSC recruited, screened, matched and supplied specialists to Verify customers; VSC paid specialists hourly and used standardized reporting and systems; some specialists had long, exclusive relationships with VSC.
- The California Employment Development Department (EDD) audited VSC after a specialist claimed unemployment benefits, assessed unemployment taxes (later reduced), and VSC paid under protest and sued for a refund.
- At trial the superior court analyzed classification under both the Dynamex ABC test and the Borello common-law factors, found the project specialists were employees, and entered judgment for EDD.
- On appeal the court held that for unemployment insurance taxes assessed for work performed before Jan. 1, 2020, Borello (and the factors codified in Cal. Code Regs., tit. 22, § 4304‑1) governs; the court affirmed the employee finding as supported by substantial evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicable test to classify workers for unemployment insurance taxes for 2011–2013 | Borello/common‑law rules (regulation 4304‑1) govern; Dynamex is inapplicable retroactively | Dynamex ABC test should apply (and retroactively) | Borello applies to unemployment insurance for work before Jan. 1, 2020; ABC applies prospectively under amended §621(b) starting Jan. 1, 2020 |
| Sufficiency of evidence on employee status under Borello | Project specialists were independent contractors: free to decline work, provided specialized services, some had business entities | EDD: VSC controlled reporting, supervised, could terminate without cause, specialists were integral/continuous to VSC business | Substantial evidence supports the trial court’s finding that specialists were employees under Borello |
| Effect of Assembly Bill 5 (AB5) / retroactivity | AB5/Dynamex should not be applied to audits for pre‑2020 work | AB5 codified Dynamex and supports broader application | Legislature made ABC test prospective for unemployment taxes; AB5 did not render Dynamex retroactive to pre‑2020 unemployment assessments |
| Whether court erred by not making statutory findings (unitary business under §135.2; leasing employer under §606.5) | Trial court should have resolved and made findings on these statutory theories | Those statutory issues were not litigated or submitted for decision | Trial court was not required to make findings on those statutes because they were not presented as issues to be decided |
Key Cases Cited
- Dynamex Operations W. v. Superior Court, 4 Cal.5th 903 (establishes ABC test for wage‑order classification)
- S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (articulates common‑law factors for employee v. independent contractor)
- Empire Star Mines Co. v. California Employment Commission, 28 Cal.2d 33 (right‑to‑control is central to common‑law employment analysis)
- Vazquez v. Jan‑Pro Franchising Int’l, Inc., 10 Cal.5th 944 (limitations of Dynamex; retroactivity and scope discussion)
- People v. Uber Technologies, 56 Cal.App.5th 266 (platform business analysis; parties’ labels not dispositive)
- Ayala v. Antelope Valley Newspapers, Inc., 59 Cal.4th 522 (right to discharge without cause is strong evidence of control)