Crossley v. California, Case No.: 20-cv-0284-GPC-JLB

• Decision Date: 17 August 2020
• Docket Number: Case No.: 20-cv-0284-GPC-JLB
• Citation: 479 F.Supp.3d 901
• Court: U.S. District Court — Southern District of California
• Parties: Michael CROSSLEY ; Bart Bailey; Let the Voters Decide, LLC ; Valley Direct Marketing LLC; In the Field, Inc.; Discovery Petition Management LLC; PIR Data Processing Inc.; Carolyn Ostic dba Voter Direct, and Chris Brentlinger dba Bay Area Petitions, Plaintiffs, v. State of CALIFORNIA; Xavier Becerra, in his capacity as Attorney General of the State of California; and "John Doe," in his/her official capacity, Defendants.

479 F.Supp.3d 901

Michael CROSSLEY ; Bart Bailey; Let the Voters Decide, LLC ; Valley Direct Marketing LLC; In the Field, Inc.; Discovery Petition Management LLC; PIR Data Processing Inc.; Carolyn Ostic dba Voter Direct, and Chris Brentlinger dba Bay Area Petitions, Plaintiffs,

v.State of CALIFORNIA; Xavier Becerra, in his capacity as Attorney General of the State of California; and "John Doe," in his/her official capacity, Defendants.

Case No.: 20-cv-0284-GPC-JLB

United States District Court, S.D. California.

Signed August 17, 2020

Daniel Lawrence Baxter, Wilke, Flewy, Hoffett, Gould & Birney, LLP, Sacramento, CA, for Plaintiffs.

Todd Grabarsky, California Attorney General's Office, Los Angeles, CA, for Defendants.

ORDER GRANTING MOTION TO DISMISS

[ECF No. 8]

Gonzalo P. Curiel, United States District Judge

This case presents a multi-pronged challenge to AB 5, a California state law enacted in 2019 which applies the three-factor "ABC" test, for determining whether a worker is an independent contractor or employee, to the entirety of the California Labor Code and the California Unemployment Insurance Code. The Plaintiffs are individuals and businesses that collect signatures to qualify popular initiated referendums on the ballot for public vote. The Plaintiffs have challenged AB 5 on numerous constitutional grounds, including, the Equal Protection Clause, the First Amendment and the California Constitution. Before the Court is a motion to dismiss filed by Defendants State of California and Xavier Becerra, in his capacity as California Attorney General (collectively, "Defendants"). ECF No. 8. Plaintiffs filed an opposition on May 6, 2020. ECF No. 9. Defendants filed a reply on May 15, 2020. ECF No. 10. The Court held a hearing on the matter on May 22, 2020. Both parties subsequently filed supplemental briefing at the Court's invitation. ECF Nos. 14, 15.

BACKGROUND

Plaintiffs are data processing entities ("Data Processors") that utilize individuals and businesses ("Collectors") to collect signatures from registered voters on ballot initiatives and referenda throughout the United States, including the State of California. Individual Plaintiffs, Michael Crossley and Bart Bailey, are two such Collectors who have rendered services to the Data Processors. ECF No. 1 ("Compl.") ¶¶ 3-5. In 2017, Individual Plaintiff Michael Crossley began collecting signatures for various Data Processors, including several Company Plaintiffs, pursuant to separately executed contracts, in order to obtain additional income. Id. ¶¶ 52-54. Similarly, in 2018, Individual Plaintiff Bart Bailey began collecting signatures in order to obtain additional income and selling the collected signatures to Company Plaintiffs on a petition-by-petition basis. Id. ¶¶ 55-57. Plaintiffs bring this action on behalf of a purported class defined as all data processors who utilize collectors within California, and on behalf of all collectors who collect signature from registered voters pursuant to independent contractor relationships with data processors. Id. ¶ 20.

Plaintiffs challenge California Assembly Bill 5 ("AB 5"), a recently-enacted statute that became effective on January 1, 2020, which defines how employment status is determined for purposes of certain state laws. AB 5, Ch. 296, 2019–2020 Reg. Sess. (Cal. 2019). Specifically, Plaintiffs seek declaratory relief as to whether Collectors are properly deemed "employees" under the test set out by AB 5 and whether AB 5 is unconstitutional and invalid. Compl. ¶ 18.

California Assemblywoman Lorena Gonzalez introduced AB 5 with the purpose of codifying the decision of the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court of Los Angeles , 4 Cal. 5^th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1 (Cal. 2018), which set forth a three-factor "ABC" test to determine whether a worker is an independent contractor or employee for purposes of the California Industrial Welfare Commission's wage orders. According to the "ABC" test established by the Dynamex court, a worker should be considered an employee, unless the hiring entity establishes the following three factors:

(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact, (B) that the worker performs work that is outside the usual course of the hiring entity's business, and (C) that the worker is customarily engaged in an independently established trade, occupation, or business.

Dynamex , 4 Cal. 5th 903 at 964, 232 Cal.Rptr.3d 1, 416 P.3d 1. AB 5 applies the ABC test to the entirety of the California Labor Code and the California Unemployment Insurance Code. Compl. ¶ 28. AB 5 achieves this by adding a new provision incorporating the ABC test into Article 1 of the California Labor Code, Section 2750.3 and amending Section 606.5 of the Unemployment Insurance Code to incorporate the ABC test into the definition of "employee." Id. ¶ 29. Any employer who fails to abide by AB 5's requirements could be found guilty of a misdemeanor or felony, and could be subject to fines up to $1,000 and/or imprisonment for up to thirty days. Id. ¶¶ 29-30, 41-42.

AB 5 includes a carve out for workers exempted from the ABC test. Id. ¶ 34. These exemptions include workers who are "traditionally considered to be independent contractors" including those engaged in occupations requiring licenses, direct sales workers, and professional service providers. Id. ¶ 35.

The contracts between most Data Processors, including Company Plaintiffs, and the Collectors either explicitly classify or treat the Collectors as "independent contractors" and indicate that Data Processors do not have certain obligations under the California Labor Code and that the Collectors do not have obligations as they would to more traditional employers. Id. ¶ 63. Plaintiffs argue that if AB 5 were enforced against Plaintiffs, by requiring them to classify the Collectors as employees rather than as independent contractors, Plaintiffs would be required to change their business model, and any existing independent contracts between Data Processors and Collectors would be invalidated. Id. ¶ 59. Plaintiffs argue this would have a detrimental effect on Collectors by depriving them of the opportunity to work in the manner that "provides the most flexibility for them." Id. Plaintiffs also contend that AB 5 would result in a reduction in the number of employable Collectors, thereby producing a "chilling effect on the collective ability" to place initiatives on election ballots. Id. ¶¶ 61-62.

Plaintiffs state that the relationship between Company Plaintiffs and Collectors begins with either a "brief informational meeting" or another interaction that is "less formal" wherein the Company Plaintiffs explain how the signature collection process works and how the Collectors will be compensated. Id. ¶ 45. The Collectors’ primary responsibility is to collect voter signatures and deliver these signatures in "raw" form to the Data Processors. Id. ¶¶ 47, 51. The Data Processor then inspects, and improves as necessary, the completed signature forms for resale to its clients, then submits the signature forms in "batched, refined" form to the downstream clients. Id. ¶ 46. The clients pay commissions to the Data Processors directly. Id. ¶ 47. The Data Processors consider the commissions received from the clients, and pay commission to the Collectors on a "piece rate commission system," which takes into account the wide variation in the quantity and quality of the Collectors’ raw signature submissions. Id. ¶ 46.

Plaintiffs argue that the Data Processors exert "no control whatsoever" over the Collectors’ work since there is little uniformity in time and manner of the Collectors’ work and the interactions between Data Processors and Collectors are minimal. Id. ¶¶ 48-50. Further, Plaintiffs assert that Collectors would be negatively affected if they were to be reclassified as "employees" since this could result in reduced work opportunities, higher taxation, and diminished control over their schedule and income opportunities. Id. ¶ 64.

Plaintiffs bring causes of action for declaratory relief on the basis that AB 5 violates the following: the federal and state constitution's Equal Protection Clauses (claims 1 and 2); the California Constitution's Inalienable Rights Clauses (claim 3); the federal and state Due Process Clauses (claims 4, 5, 6, 7, and 11); article I, sections 2 and 3, of the California Constitution (claim 8); the federal Ninth Amendment and California's "Baby" Ninth Amendment (claims 9 and 10); and the federal and state Contracts Clauses (claims 12 and 13). Plaintiffs seek injunctive relief to prevent the enforcement of AB 5 against Company Plaintiffs (claim 15), and in the alternative, Plaintiffs seek a court declaration that Individual Plaintiffs are independent contractors when working as Collectors for the Company Plaintiffs (claim 14).

LEGAL STANDARD

Federal Rule of Civil Procedure ("Rule") 12(b)(6) permits dismissal for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police Dep't. , 901 F.2d 696, 699 (9th Cir. 1990). Under Rule 8(a)(2), the plaintiff is required only to set forth a "short and plain statement of the claim showing that the pleader is entitled to relief," and "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A complaint may survive a motion to dismiss only if, taking all well-pleaded factual allegations as true, it contains enough facts to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678...