Hall v. Cultural Care, Inc.

Background

The plaintiffs in three consolidated putative class actions worked as local childcare coordinators, or LCCs, for Cultural Care, a sponsor of the federal au pair program. The LCCs coordinated work involving au pairs and host families. Cultural Care classified the LCCs as independent contractors.

The plaintiffs alleged that California law required Cultural Care to classify them as employees. Their complaints included claims for unpaid wages and inadequate breaks, as well as a related claim under California’s Unfair Competition Law. The named plaintiffs were Melissa Hall, Nicole Ludwig, and Paula Ventura, who worked as LCCs at various times between April 2016 and November 2020.

Both sides moved for summary judgment, which is a decision without a trial when the relevant facts are not genuinely disputed and one side is entitled to judgment under the law.

Which classification test applied

The parties disagreed about whether California’s ABC test or the Borello test governed. Under the ABC test, a worker is presumed to be an employee. The hiring entity must prove all three of these points to establish independent-contractor status: the worker was free from its control; the worker performed work outside the usual course of its business; and the worker operated an independently established business of the same kind.

Cultural Care relied on a 2020 California statute that created an exception for certain individuals engaged by officially designated international exchange programs. That statute stated that the Borello test would apply to those individuals and included a retroactivity provision.

The court rejected the plaintiffs’ argument that the retroactivity provision was insufficiently clear. It held that the provision clearly expressed the Legislature’s intent to apply the exception retroactively. But the court accepted the plaintiffs’ constitutional argument. It reasoned that wages already earned are vested property rights, and that retroactively applying the Borello test could take away wages earned under the ABC test. The court held that doing so would violate the California Constitution’s due-process guarantee because it did not sufficiently further an important state interest and would disrupt reasonable reliance on the law previously in effect.

Application of the ABC test

The court concluded that there was no need to apply the Borello test. It held that the plaintiffs were entitled to summary judgment under the ABC test for two independent reasons.

First, Cultural Care did not respond in its briefing to the plaintiffs’ arguments concerning the ABC test’s B and C requirements. The court found that the plaintiffs had made an initial showing supporting judgment as a matter of law and that Cultural Care had not identified evidence creating a genuine factual dispute.

Second, the court independently concluded that the plaintiffs satisfied the B and C requirements. The B requirement asks whether the worker performs work outside the hiring entity’s usual business. The court found that Cultural Care’s business was coordinating the au pair program and that LCCs performed the central and necessary coordination work.

The C requirement asks whether the worker is customarily engaged in an independently established business of the same kind. The court found no evidence that the named plaintiffs or other LCCs performed LCC-type work independently or for other entities. It also noted that the State Department regulations required an entity to be certified as a sponsor, making the relevant independent business structure difficult to establish on the record presented.

Cultural Care argued that State Department regulations should affect the analysis because they required some of its policies and procedures. The court explained that this type of regulatory argument concerns control under the Borello test and does not address the ABC test’s B and C requirements. The court also found Cultural Care’s broader version of the argument unpersuasive.

Judicial estoppel

Cultural Care argued that the plaintiffs should be barred from claiming employee status because they had identified themselves as independent contractors on tax filings with the Internal Revenue Service. The court rejected this argument. It found that the plaintiffs used that classification because Cultural Care had classified them that way, and that correcting the alleged misclassification was the purpose of the lawsuit. The court concluded that there was no clearly inconsistent position, misleading effect, or unfair advantage sufficient to apply judicial estoppel, an equitable doctrine that can prevent a party from taking inconsistent positions in litigation.

Other claims, defenses, and sealing

The court granted the plaintiffs’ motion for summary judgment on their inaccurate wage-statement claim and on Cultural Care’s affirmative defenses concerning non-employee status and inclusion in the cultural exchange program. The court treated those matters as derivative of the misclassification ruling.

The court granted the parties’ motions to seal information such as individual tax filings and tax returns, finding that the material was sensitive and confidential and was not relevant to resolving the issues.

Disposition

The plaintiffs’ motion for summary judgment on misclassification, the derivative claim, and the affirmative defenses was granted. The defendants’ motion for summary judgment was denied. The court also referred the matter to Magistrate Judge Alex Tse for settlement. The order was dated July 22, 2022.