A HIRING PARTY MAY BE LIABLE FOR THE CONTRACTOR’S TORTS IF THE HIRER HAD THE RIGHT TO TERMINATE THE RELATIONSHIP

As a general rule, an employee of an independent contractor cannot sue the party that hired the contractor to do the work.  This is also known as the Privette Doctrine, which arose after the case of Privette v. Superior Court. In the Privette case, the Court held that owners and general contractors are not liable for injuries to the employees of subcontractors unless they have affirmatively done something by an act or omission that causes the injury.

THE PRIVETTE DOCTRINE

The Seabright Insurance v. US Airways case redefined the Privette Doctrine.  In the Seabright case, the Court held that the hiring party is not liable when the hirer failed to comply with workplace safety requirements concerning the precise subject matter of the contract and the contractor’s employees were injured as a result.  Later courts have held that parties are not vicariously liable for injuries to third parties as a result of the tortious conduct of an independent contractor.

An employment relationship is also known as an agency.  According to California Civil Code section 2295, an “actual” agency occurs when the agent is actually employed by the principal.  Under California Civil Code section 2300, an “ostensible” agency occurs when the principal intentionally, or by want of ordinary care, causes a third person to believe that another is his agent who is not really employed by him.  An agency may also be implied from the facts and surrounding evidence.  In order to prove that an agency exists, the injured party must prove that one of the parties has the right to control and supervise the actions of another.  This disproves any presumption of an independent contractor relationship, even if the right to control is not exercised and there is no actual supervision of the agent’s work.

CASE STUDY MONARREZ V. AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA

After the Privette and Seabright cases, the California Court of Appeals clarified certain circumstances in which the parties’ conduct may prove the existence of an employment relationship.  In the recent case ofMonarrez v. Automobile Club of Southern California, a motorist was struck and injured by a car while a tow truck operator, who was dispatched by the defendant, was hooking up his vehicle.  The main issue in this case was whether the tow truck operator was an employee for whom Auto Club was legally responsible, or an independent contractor.  The tow truck operator, Juan Felix, worked for Hirad, Inc., a company that contracted with Auto Club.  Hirad is described as an independent contractor in its “Preferred Contractor Roadside Assistance Contract” with Auto Club.

In determining the relationship between Auto Club and Hirad, the Court in Monarrez focused on Auto Club’s right to terminate the relationship at-will as an indication of “control.”  Even though the contract between the companies described Hirad as an independent contractor, the Court held that Auto Club’s right to terminate the contract indicated a right to control.  In its analysis, the Court quoted the Brose v. Union Tribune Publishing Co. case, which held that “the right to terminate employment at any time strongly tends to show the subserviency of the employee, since it is incompatible with the full control of the work usually enjoyed by an independent contractor.  Perhaps no single circumstance is more conclusive to show the relationship of an employee than the right of the employer to end the service whenever he sees fit to do so.”  Since Auto Club had the right to terminate its contract with Hirad at any time, it showed that Auto Club had the right to control Hirad and its employees, thus establishing an agency.

The Court in Monarrez also analyzed several other factors in determining that Auto Club was Hirad’s employer.  Such factors include the following: 1) Hirad’s technicians are certified by Auto Club and cannot log in or receive dispatches if their certification lapses or if they fail to undergo Auto Club’s training every two years, 2) Nearly all of HIrad’s business comes from Auto Club, 3) Hirad’s managers are barred from doing business with Auto Club’s competitors without Auto Club’s written consent, 4) Customers are “Auto Club’s customers” not “Hirad’s customers,” 5) All service calls are at the sole discretion of Auto Club, not Hirad, 6) The uniform of the technician bears only the Auto Club logo, 7) Technicians identify themselves as Auto Club to instill confidence and always say, “Thank you for choosing the Auto Club,” at the completion of service, and 8) Technicians are instructed to direct members to Auto Club’s affiliated car repair facilities and rental car companies, and always carry Auto Club printed materials in their trucks.

Previous courts have treated the right to terminate a contractual relationship at-will as a mere “secondary” factor when analyzing the issue of control.  However, the Monarrez case has changed this trend so that future courts will treat an at-will termination provision as a dispositive indication of control, thus establishing an employment relationship.  As a result of this case ruling, contracting parties may not presume that an agreement that describes one of the parties as an independent contractor, will establish an independent contractor status, so long as the right to control is indicated by their conduct.

In addition to being vicariously liable, employers who misclassify their employees as independent contractors are subject to penalties.   According to the “previous” Labor Code sections 226.8 and 2753, employers are subject to civil penalties of $5,000 to $15,000 per violation, if they are found to have willfully misclassified a person as an independent contractor.

THE NEW LAW

The “new law”, which was signed by Governor Jerry Brown on October 9, 2011, imposes civil penalties of up to $25,000 and requires businesses to publicize violations on their company’s websites.  This deters employers from attempting to misclassify their employees as independent contractors, which enables them to avoid paying worker’s compensation insurance, mileage reimbursement, and other expenses.