Fleming v. Matco Tools Corporation

Background

John Fleming moved under Federal Rule of Civil Procedure 23(b)(3) to certify a class involving California wage-and-hour claims. The proposed class consisted of persons who signed Matco franchise Distributor Agreements in California and personally operated a mobile store during the four years before the action was filed. The opinion states that 288 distributors operated during the class period and that most were franchisees operating their own routes.

Matco manufactures and distributes mechanic’s tools. Its franchisees bought Matco products at wholesale prices, resold them at retail prices, operated branded Matco trucks, followed contractual requirements concerning routes and customer lists, used Matco software, attended training and district meetings, and complied with other business-system requirements. Matco classified the franchisees as independent contractors and did not reimburse their operating expenses or require them to track their hours.

Fleming alleged that Matco’s classification of him and similarly situated distributors avoided duties imposed on employers by California law. The claims included expense reimbursement, overtime, meal and rest breaks, waiting-time penalties, wage deductions, wage statements, and related claims under California’s unfair competition law (UCL).

Rule 23 requirements

The court found that Fleming satisfied the numerosity, commonality, typicality, and adequacy requirements of Rule 23(a). The proposed class was sufficiently numerous, and Matco did not dispute that point. The court found a common question concerning whether the distributors were misclassified as independent contractors.

The court rejected Matco’s arguments that Fleming was not typical or adequate because he was a former franchisee, some current franchisees preferred the existing arrangement, certain later agreements might contain enforceable arbitration provisions, or Fleming had released some earlier claims. The court concluded that these circumstances did not defeat typicality or adequacy on the record presented.

For Rule 23(b)(3), the court asked whether common questions predominated over individual ones and whether a class action was superior to other methods of resolving the dispute. The court concluded that common questions predominated for the threshold misclassification issue under either California’s ABC test or the Borello test.

Misclassification

The court concluded that the ABC test adopted in Dynamex Operations West v. Superior Court likely applied. Under that test, a worker is presumed to be an employee unless the hiring entity establishes that the worker is free from its control, performs work outside the entity’s usual business, and is independently engaged in a business of the same nature.

The court rejected Matco’s arguments that the ABC test did not apply because the relationship was a franchise relationship, because Matco did not directly hire or compensate the franchisees, or because the test could not apply to this type of franchise. The court stated that the common Distributor Agreements provided class-wide evidence concerning Matco’s contractual control, the nature of the franchisees’ work, and whether they operated an independently established business.

The court also concluded that common questions predominated under the Borello test, which examines factors including the right to control the manner and means of the work, whether the worker operates a distinct business, the degree of direction or supervision, whether the work is integral to the defendant’s business, and the parties’ understanding of their relationship. The court found that the common agreements and obligations would provide common proof for these issues.

Individual claims

The court denied certification of the overtime, meal-and-rest-break, and waiting-time claims. Matco asserted that California’s outside-sales exemption applied to at least some franchisees. Applying that exemption requires an individualized examination of how each person actually divided working time between sales and nonsales activities. The opinion identifies activities including selling products, delivering products, collecting payments, and providing warranty service or repairs. Because those individual inquiries would predominate, the court declined to certify these claims. The waiting-time claim was derivative of the overtime claim and was also not certified.

The court granted certification of the expense-reimbursement claim under California Labor Code section 2802. Matco had a uniform policy of not reimbursing distributors for expenses. The court held that individual questions about the amount or reasonableness of expenses concerned damages and did not prevent certification. The expenses identified in the opinion included fuel, maintenance, registration, computers, printers, software, internet service, cell phones, uniforms, insurance, unsold or returned tools, and franchise fees.

The court denied certification of the wage-deduction claim. Fleming’s motion offered little explanation or evidence supporting that claim, and the court found no evidence that Matco withheld costs from wages paid to franchisees. The court noted that franchisees were compensated through profits from reselling Matco products, making it unclear how Matco had deducted these expenses from wages.

The court found that common questions predominated for the wage-statement claim because it largely depended on the common misclassification question. It also addressed the UCL claim as derivative of other claims. The opinion states that common questions predominated for the UCL claim to the extent it was derivative of the reimbursement claim, while its conclusion describes the certified UCL claim as being “as to the wage statement claim.”

Disposition

The court granted in part and denied in part Fleming’s motion for class certification. It granted certification on misclassification, expense reimbursement, and wage-statement claims, and on the UCL claim to the extent specified in the order. It denied certification for overtime, meal and rest breaks, waiting time, and wage deductions. The order was signed by United States District Judge Iam H. Orrick on February 21, 2021.