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District Court Rejects Motions by AT&T and Its Contractor to Compel Arbitration and Dismiss Complaint in Misclassification Case

On October 30, 2014, the Federal District Court from Eastern District of California rejected the basis of Defendant Carter Brothers Security Services, LLC’s motion to compel arbitration, and effectively to dismiss the plaintiffs’ complaint, in the case Gutierrez, et al. v. Carter Brothers Security Services, LLC, et al. Plaintiffs make many claims in their complaint that the defendant, including claims that the defendant…

…willfully misclassified employees as independent contractors,

…willfully failed to pay Plaintiffs and Class Members overtime and double time as required by law,
…willfully failed to provide mandated meal and rest periods,

…willfully failed to pay compensation due and owing in a prompt and timely manner upon termination, and
…willfully required plaintiffs as a precondition of employment to sign illegal, voidable, unenforceable and unconscionable “Independent Contractor Agreements.”

These “Independent Contractor Agreements” included an arbitration agreement which, if ruled valid, would have required the Court to dismiss the plaintiffs’ complaint and send the matter to arbitration. The Court declined to compel arbitration, based on an interesting process of analysis. First, whereas the relevant laws from Georgia, where Carter Brothers is headquartered, would support the defendants’ motion, the Court found that the case belongs in California. But since Georgia’s law “would…contravene fundamental California public policy ‘ in favor of ensuring worker protections'” regarding determination of a litigant’s employee/independent contractor status, and since California has a far greater interest in the case, the Court ruled that California’s law should be used. Thus, the Court concluded, in order to determine whether the arbitration provision was enforceable, it would first have to determine whether the contract was generally valid.

Plaintiffs had argued that the Agreement in question, which they had been required to sign as a condition of their employment, was “permeated with illegal and unconscionable terms,” and were therefore not enforceable.

In the end, the Court agreed that the contracts were unconscionable. First, it found that these were “adhesion contracts“–that is, “standard-form contract(s), drafted by the party with superior bargaining power, which relegate(d) the other party to the option of either adhering to its terms without modification or rejecting the contract entirely.” Further, the Ninth Circuit has held that “[a] finding of a contract of adhesion is essentially a finding of procedural unconscionability.” Thus, the contracts were procedurally unconscionable. Second, the Court found that the contracts imposed one-sided burdens on employees, which made it impractical for them to use arbitration to vindicate their statutory rights. Thus, by both of the applicable legal criteria, the contract is unconscionable and thus unenforceable.

Further, the Court continued, the contract’s “central purpose” was “tainted with illegality,” since, as plaintiffs allege, the main purpose of getting employees to sign the contract was to allow the employer to avoid paying employment taxes and receive other benefits. Thus, “because the Agreements’ underlying purpose appears to be illegal, the Court declines to enforce it.”

Now the interesting questions will be: A) how many plaintiffs will join, and will the class be certified? b) Will AT&T and Carter Brothers be treated as joint employers, so both are liable: And c) will the parties settle. The question of whether the plaintiffs are independent contractors or employees seems all but decided.

If you believe you have been misclassified as an independent contractor by your employer, please contact The Harman Firm, LLP.

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