Lemon Law

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HOLDINGS: [1]-In determining whether to classify workers as employees or as independent contractors for purposes of California’s wage orders enacted under the authority of Cal. Const., art. XIV, § 1, and Lab. Code, §§ 1173, 1178, 1178.5, 1182, 1185, the “suffer or permit to work” standard set forth in the wage orders required a hiring entity asserting independent contractor status to establish each of the three factors of the ABC test and show that a worker was free from its control, performing work outside the usual course of its business, and customarily engaged in independent work; [2]-A sufficient commonality of interest under part of the ABC test adequately supported the trial court’s certification of a class of drivers who worked for a delivery service company, performed delivery services only for the company, and alleged that they had been misclassified as independent contractors. The parties were represented by their own California small business attorney.


Judgment affirmed.

Procedural Posture

Plaintiff merchant appealed from a judgment of the Superior Court of Orange County (California), which sustained demurrers filed by defendants, a bank, its registered agents, and its parent holding company, ruling that federal law preempted the merchant’s action, brought under California’s unfair competition law (UCL), Cal. Bus. & Prof. Code § 17200, and ruling that the merchant did not allege facts demonstrating the parent company’s liability.


The merchant started a work-at-home business involving grocery coupons. To process customers’ credit cards, the merchant obtained a merchant account from the bank. The court held that the termination fee in the merchant agreement was not a liquidated damage under Cal. Civ. Code § 1671. The merchant never agreed not to terminate the merchant agreement; in fact, the lack of any specified duration in the merchant agreement made payment of the termination fee inevitable. Thus, the fee was merely a deferred charge attendant to initiating the account. The merchant failed to allege facts sufficient to demonstrate unconscionability under Cal. Civ. Code § 1670.5. The merchant failed to allege he could not have obtained merchant credit card services from another source on different terms. The merchant did not allege that he was unaware of the fee when he executed the merchant agreement or that its terms were misrepresented to him. The fee was not substantively unconscionable because it did not reallocate the risk of the bargain in an inappropriate manner. Remand was appropriate to give the merchant the opportunity to plead facts demonstrating unconscionability.


The court reversed the judgment and remanded to allow the merchant the opportunity to plead facts stating a cause of action under the UCL. The court affirmed the trial court’s dismissal of the parent company.


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