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AT&T can’t disconnect from wage claims brought by its contractor’s workers

By Lisa Milam-Perez, J.D.

AT&T Corp will not be let off the hook in a wage suit brought by technicians employed by a separate company, ostensibly as independent contractors, to install security systems for the telecom giant. A federal district court in California held there were ample allegations in the pleadings to support a finding of an employment relationship between AT&T and the technicians, both under California’s “all necessary control” test and under the economic realities test favored by the Ninth Circuit in the FLSA context (Guitierrez v Carter Brothers Security Services, LLC, October 29, 2014, England, M. Jr).

For now, a claim against AT&T under California Labor Code Section 2810 survived as well. That provision allows a contractor’s workers to go after the contracting company if they can establish that the parties should have known that the terms of the contract between them would be insufficient to pay them their due under state law. AT&T and several related corporate entities were named alongside the contractor in this wage action. The workers also provided sufficient factual allegations to support their claims for conversion and unfair competition against AT&T, the court found, refusing to dismiss these claims too.

Allegations. Under a contract with AT&T, Carter Brothers provided technicians to install security systems in AT&T customers’ homes and businesses. The contract required Carter Brothers to hire, train, and supply labor and construction-related installation and monitoring technicians to AT&T in California and various other states. Carter Brothers entered into “independent contractor agreements” with installation technicians to perform the AT&T work. However, a group of technicians filed suit, contending they were actually employees — of both Carter Brothers and AT&T.

According to their complaint, the technicians were required to enter into the independent contractor agreements so that the two companies could skirt federal and state wage-hour and labor laws and evade tax liability. The technicians also alleged the companies knew that the contract between them wouldn’t be sufficient to comply with applicable local, state, and federal laws or regulations governing the labor or services to be provided. As such, the contract allegedly violated California Labor Code Section 2810.

The technicians also claimed that as an inducement to sign the independent contractor agreements, the companies “fraudulently promised” them that they would be converted to “W-2” employees after a short introductory work period, but that never happened. In addition, the agreements contained “illegal, unconscionable, void and voidable” provisions, they asserted; thus, they wanted to rescind the deals and asked the court to find the contracts invalid and unenforceable in their entirety.

AT&T argued that it could not be held liable for any of the violations alleged because the technicians failed to provide any facts that would establish that it was their employer. The court disagreed, holding that the technicians alleged sufficient facts to support their claim that they were employees, not independent contractors, and that AT&T was their joint employer. Looking to the Borello factors recently reaffirmed by the California Supreme Court as the proper analysis in such cases, the district court found it clear that the technicians sufficiently alleged AT&T was their joint employer.

Right to control. According to the complaint, AT&T had control over the technicians’ appearance (they had to wear uniforms bearing AT&T logos) and working hours (they received their work schedules from both Carter Brothers and AT&T, and they had no control over their schedules or appointments). AT&T also controlled the technicians’ working conditions, including the manner and means of their work: requiring them to participate in a two-week start-up training program in addition to ongoing training; dispatching them to worksites; and regularly supervising and overseeing their work. The technicians were expressly forbidden from engaging in any outside work with competing employers, both during and after the term of their agreements.

Also, according to the technicians, they could be involuntarily terminated for any reason. And while this this provision applied explicitly only to Carter Brothers, the court concluded that AT&T also held the power, at least indirectly, to terminate the technicians at will based on their allegations that AT&T also possessed considerable control and supervision over the terms and conditions of their work.

Secondary factors. None of the remaining secondary factors weighed sufficiently in AT&T’s favor for the court to conclude as a matter of law that the technicians were independent contractors relative to AT&T. While AT&T argued that the technicians had signed the independent contractor agreements and had obtained their own licenses — thus indicating that the parties mutually believed they were creating an independent contractor relationship — the court found this insignificant, noting that it was the defendant companies that required the technicians to obtain their licenses and that, according to the technicians, they had been induced into signing the agreements by false promises of “W-2” employment.

Also, although the fact that the technicians had to buy some of their own tools would point towards independent contractor status, the complaint alleged that the technicians were told that the companies would furnish their tools, and the technicians only bought their own tools when the companies failed to do so. At any rate, the court said, California courts in several instances have found that an employment relationship can exist even where employees have invested in tools. Finally, the fact that the technicians had little or no previous specific training in security system installation or services, no ownership or investment in the business, and drove vehicles owned and operated by AT&T (and displaying AT&T branding and logos) further undermined a finding of independent contractor status under California law.

Employer status under FLSA. Applying the “economic reality” test to determine whether AT&T was an employer under the FLSA, and noting its similarity to California’s test, the court cited these same facts in concluding that the technicians sufficiently alleged they were employees of AT&T for purposes of their federal wage claims as well. Here, the court rounded out the analysis by pointing to a few additional key indicators: The technicians provided support services for an integral part of AT&T’s business; also, because they were paid an hourly wage, they had no opportunity for profit or loss depending upon their managerial skill.

Sec. 2810 claim. The factual allegations were also sufficient to allow a reasonable inference that AT&T violated Labor Code Sec. 2810. AT&T contended there were no allegations that it knew or should have known the sums it paid to Carter Brothers under the contract were insufficient to comply with all labor laws, if in fact the contract was underfunded. However, the technicians had attached the independent contractor agreement to their original complaint — an agreement that both Carter Brothers and AT&T required them to sign — as evidence that AT&T knew they were misclassified as independent contractors and thus failed to receive the benefits to which they were entitled under state and federal law. Taking into account the totality of the circumstances alleged, the court found the technicians pleaded enough factual allegations to support a Sec. 2810 claim that two companies entered into labor contracts too stingy to comply with the law.

AT&T also argued to no avail that  installation of security systems was not “construction labor … or services” within the meaning of Sec. 2810. However, the complaint alleged that the requisite “construction labor” was indeed entailed by the installation services being performed. Accepting these allegations as true, as it must for purposes of a motion to dismiss, the court said AT&T’s argument to the contrary did not warrant dismissal.