One common attribute of the “gig economy,” particularly associated today with “high tech” companies, is the retaining entity’s (The Company’s) frequent reliance on a worker placed by an employment agency (The Contractor), rather than a full time employee, to perform technical services such as programming, product development, and database management. Many “high tech” companies find it less expensive and more efficient to get their work done using placed temporary workers. Frequently, before starting work, the worker placed by The Contractor will be asked to sign documents acknowledging that he or she is not an “employee” of The Company. The worker’s agreement, by execution of such documents, is often required by The Company to insulate it from wage and hour law liability, potential tax obligations, and worker’s compensation requirements – all of which might arise if the placed worker were deemed to be The Company’s employee.

But circumstances can arise where The Company, even though it has earlier contractually sought to establish that the placed worker is the employee of only the agency (and not The Company), wants to assert later that his status was really something different. For example, if the worker sustains injury (either at work, or offsite during a workplace-related activity) as the result of the alleged negligence of The Company or one of its employees, and files a civil action, The Company might seek to assert the Affirmative Defense of “special employment.” Successfully doing so would avoid civil liability for the placed worker’s injuries, and limit him or her to the exclusive remedy of worker’s compensation.

What is the “special employment” defense in California? “When an employer—the ‘general’ employer—lends an employee to another employer and relinquishes to a borrowing employer all right of control over the employee’s activities, a ‘special employment’ relationship arises between the borrowing employer and the employee.” Marsh v. Tilley Steel Co. (1980) 26 Cal.3d 486, 492. Under such circumstances: “If workmen’s compensation is available, it constitutes, with an exception not pertinent here, the workman’s sole remedy against the employer. Lab. Code, § 3601.” Kowalski v. Shell Oil Co. (1979) 23 Cal.3d 168, 175. In this hypothetical, the general employer would arguably be the employment agency or other third party entity that placed The Contractor with The Company; and The Company seeks to be designated as her “special employer.”

Whether a special employment relationship exists generally presents a question of fact for the jury. Kowalski, 23 Cal.3d at p. 175. “However, if neither the evidence nor inferences are in conflict, then the question of whether an employment relationship exists becomes a question of law which may be resolved by summary judgment.” Riley v. Southwest Marine, Inc. (1988) 203 Cal.App.3d 1242, 1248.

There are a number of factual inquiries that determine whether a special employment relationship exists in a particular case. The primary consideration is whether the special employer has “[t]he right to control and direct the activities of the alleged employee or the manner and method in which the work is performed, whether exercised or not….” Wedeck v. Unocal Corp. (1997) 59 Cal.App.4th 848, 857. There are other factors which the court must consider as well, because the right to control is not the only consideration: “Even if USA had the naked right to control Stallings, such does not inexorably compel the conclusion that he was the “special employee” of USA.” Barajas v. USA Petroleum Corp. (1986) 184 Cal.App.3d 974, 984.

See, Brassinga v. City of Mountain View (1998) 66 Cal.App.4th 195, 217: “In addition to the alleged special employer’s control over the employee, there are a number of other factors relevant to deciding whether a special employment relationship existed. The existence of a special employment relationship may be supported by evidence that (1) the alleged special employer paid wages to the employee, (2) the alleged special employer had the power to discharge the employee, (3) the work performed by the employee was unskilled, (4) the work tools were provided by the alleged special employer, (5) the work was part of the alleged special employer’s regular business, (6) the employee expressly or impliedly consented to a special employment relationship, (7) the parties believed they were creating a special employment relationship, and (8) the alleged special employment period was lengthy. (Citation omitted.)”

Rather than acceding to the court’s use of that factor analysis to determine “special employment,” the worker’s counsel may make the argument that the California Supreme Court has set up a prerequisite to employing it in the first place, relying on a footnote in Kowalski, 23 Cal.3d at p. 178, & fn. 10 (emphasis added):

In addition, consideration must be given to whether the worker consented to the employment relationship, either expressly or impliedly, [FN 10] and to whether the parties believed they were creating the employer-employee relationship.

[FN 10] In 1A Larson, Workmen’s Compensation Law, section 48.10, pages 8-205 8-206, the author states: “If this question cannot be answered ‘yes,’ the investigation is closed, and there is no need to go on into the tests of relative control and the like….”

The quoted portion of Kowalski, and the notion there stated that showing worker consent is a prerequisite to “special employment” status, has been criticized by the Court of Appeal, Sixth District, in Santa Cruz Poultry, Inc. v. Superior Court (1987) 194 Cal.App.3d 575, 581. The Santa Cruz Poultry court there concluded: “in addition to being unnecessary to the result which had already been premised on the existence of control, [the decision in Kowalski] flowed from the principle that the contract between the two employers…could not control the parties’ status; rather, the actualities of the situation were determinative.” Id. at 581.

However, no subsequent statement by the Supreme Court has ever repudiated footnote 10 of the Kowalski decision. Moreover, the fact situation in Santa Cruz Poultry might be deemed distinguishable from the hypothetical proposed here. There, not deemed dispositive as to “special employee” status were: “…documents in which [the agency] reminds its employees that it, and not the company they may be temporarily assigned to, is their employer.” Id. at 581. A factual distinction is that in Santa Cruz Poultry there was no contractual agreement between the injured worker and the alleged “special employer,” which might arguably negate worker consent to such a relationship. Here, our hypothetical assumes that the very parties whose relationship is in dispute signed agreements which expressly repudiate the placed worker’s alleged “special employee” status.

To summarize, the placed worker would argue in this fact situation that the defense of “special employment” is barred as a matter of law, for lack of worker consent, as demonstrated by signed contracts between them; whereas, The Company would argue that the factual factor analysis set forth in Brassinga controls the result – the intention of the parties is simply one, among many, factual considerations. If the placed worker’s argument that “lack of worker consent” barred the defense did not prevail, then the factor analysis set out in Brassinga and other authorities would control the result, either as an issue of law for the court, or an issue of fact for the jury.

The affirmative defense of “special employment” may be asserted by a retaining entity, even under circumstances where it tried hard to set up an independent contractor relationship with its worker. The courts will be asked more often, in the future manifestations of the “gig economy,” to untangle these relationships, under circumstances where it is often hard to figure out who is working for whom.

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Ralph L. Jacobson

Ralph Jacobson received his law degree from Stanford University in 1969. His concentration has been in personal injury for over 30 years. He has written numerous articles for the CEB Civil Litigation Reporter, a leading professional journal for attorneys.