Loading...
HomeMy WebLinkAbout3/17/2026 Item 1b, Cross FW: Formal Notice and Final Demand: Worker Misclassification, CalPERS Liability, and Intent to Pursue Legal Remedies From: Brett Cross < Sent: Sunday, March 15, 2026 3:45:29 PM To: Stewart, Erica A <estewart@slocity.org> Subject: Formal Notice and Final Demand: Worker Misclassification, CalPERS Liability, and Intent to Pursue Legal Remedies TO: San Luis Obispo City Council FROM: Brett Cross DATE: March 15, 2026 RE: Formal Notice and Final Demand: Worker Misclassification, CalPERS Liability, and Intent to Pursue Legal Remedies Honorable Mayor and City Council Members, I am writing to you today out of concern that the City Attorney, Christine Dietrick, has not been transparent with this Council regarding the city’s exposure to misclassification penalties. For 33 years, I served this City with consistent dedication by managing the collection of coins from parking meters—an essential, ongoing municipal function. Throughout that entire period, I was classified as a “contractor,” despite the nature, duration, and control of my work clearly meeting the legal definition of an employee under California law. Demand for Resolution I am prepared to resolve this matter without litigation only if the City agrees to the following no later than March 31, 2026: 1. Immediate Reclassification Formal acknowledgment of my 33-year tenure as an employee 2. Retroactive CalPERS Enrollment Enrollment covering the full 33-year period of service 3. Full Contribution Coverage Payment by the City of both the employer and employee portions of all retroactive CalPERS contributions 4. Reimbursement of Legal Fees Full payment by the City of my legal and mediation expenses (currently totaling approximately $20,000), as these costs were incurred solely due to the City’s failure to correctly classify my position 1 It has now become clear that this long-term misclassification violates both California’s ABC Test (Assembly Bill 5) and CalPERS Common Law Employee regulations. I am deeply concerned that the City Attorney has not fully or transparently disclosed to this Council the extent of the City’s legal exposure arising from this misclassification. The Legal Reality of Misclassification Under California law, a worker is presumed to be an employee, not an independent contractor, unless the hiring entity can prove all three prongs of the ABC test: 1. The worker is free from the control and direction of the hiring entity 2. The work performed is outside the usual course of the entity’s business 3. The worker is customarily engaged in an independently established trade My 33 years of continuous, daily service, my integration into City operations, and the trust and control inherent in my role fail every prong of this test. In addition, CalPERS regulations require enrollment of any worker who meets the Common Law Employee standard. By misclassifying my role for more than three decades, the City avoided required retirement contributions while I performed the duties of a dedicated public servant. CalPERS Liability and Audit Risk The City’s obligation to correctly classify my position is not a matter of opinion; it is a matter of settled law. Under Government Code § 20305 and as explicitly detailed in CalPERS Circular Letter 200-037-25, the City is legally mandated to enroll any individual who completes 1,000 hours of service in a fiscal year. Furthermore, the California Supreme Court, as summarized in Circular Letter 200-154-04, has made it clear that this mandate applies to all 'common law' employees, regardless of any 'contractor' label the City may have used. Filing a formal Determination of Employment Status—which I am prepared to do on April 1, 2026—will trigger a comprehensive statewide audit of a municipality’s entire contracting system. While I would prefer to avoid subjecting the City’s vendor structure to this level of scrutiny, I will do so to protect my earned retirement security. Rationale for Full Contribution Coverage For 33 years, the City realized substantial cost savings at my expense. While City employees received vacation, sick and bereavement leave, Workers’ Compensation coverage, and employer-funded CalPERS retirement benefits, I received none. Instead, I paid both the employer and employee portions of Social Security and Medicare taxes as a misclassified contractor. Equity and restitution require that the City now assume full responsibility for all retroactive CalPERS contributions. The City’s Financial Liability 2 A formal Discounted Cash Flow (DCF) analysis has been conducted based on CalPERS benefit calculations. This analysis accounts for the present value of 33 years of service credit, compounding interest, and the City’s avoided costs. The analysis confirms a substantial financial obligation by the City through misclassification and will serve as the evidentiary basis for damages in the impending litigation. A Pattern of Administrative Delay I am concerned that the City Attorney has both misrepresented the City’s liability and delayed meaningful resolution at taxpayer expense:  January 29, 2026: Mediation was held. The City provided no follow-up or response.  February 10, 2026: Due to the City’s silence, I was forced to file a formal claim.  March 17, 2026: The City scheduled a closed-session discussion near the end of the 45-day statutory response period. By waiting until the final days of the legal window to address a 33-year service history, the City has effectively exhausted the opportunity for amicable resolution. Christine may argue these points: “He signed a contract.” The California Supreme Court has ruled that contract labels do not determine worker status. A worker’s statutory rights cannot be waived by contract. “He never complained before.” The burden of correct classification rests solely with the employer. Silence does not excuse a 33-year violation. “This sets a bad precedent.” This matter represents a historically unique administrative anomaly involving 33 years of continuous service in a core municipal function. Correcting this error does not alter City policy and does not apply to the City’s general contractor pool. I have already attempted to resolve this through mediation in good faith. To date, I have personally invested $20,000 in legal fees and mediation costs to address what is a clear-cut case of worker misclassification. My commitment to seeing this through to a legal judgment is absolute. Notice of Intent My counsel has prepared a formal draft complaint. If a signed agreement is not reached by March 31, 2026, I will proceed with litigation for worker misclassification under the ABC test. Additionally, I will. 1. File a Formal CalPERS Determination Claim: Triggering a state-level investigation into the City's pension enrollment compliance. 3 2. File IRS Form SS-8: Initiating a federal investigation into the City’s payroll tax and Social Security/Medicare compliance. 3. File for Unemployment Benefits with the EDD: As a misclassified employee, I am eligible for benefits. An EDD filing where no unemployment insurance (UI) taxes have been paid will trigger an automatic investigation into the City’s labor practices and a demand for unpaid UI taxes and penalties. The choice to avoid a public fiscal crisis and a state-level audit rests with this Council. Sincerely, Brett Cross 1217 Mariners Cove San Luis Obispo, CA 93405 PS Christine said during a call with my attorney, "obviously the city does not want to be in litigation with Brett". And neither do I. It's unfortunate it has come to this. 4 ANDRE, MORRIS BUTTERY A Prafessional Lutv Corporation Peter R. Andre (Deceased) Michael J. Morris (Deceased) James C. Buttery (Retired) Kathryn M. Eppright Lisa LaBarbera Toke Karen Gjerdrum Fothergill Cameron T. Cotton Michaela R. Cotton Kyle J. Johnson Taking Care of Businessfor Over 75 Years. January 20,2026 Via Email and USPS Christine Dietrick City Attorney 990 Palm St. San Luis Obispo, CA9340l-3249 Re: Brett Cross misclassification Dear Christine I have been retained as co-counsel for Brett Cross, and I have reviewed your letter to Edwin Rambuski dated October 21,2025, regarding the City of San Luis Obispo's ("the City") termination of Mr. Cross. I am sending this letter to share with you my analysis of how and when the City misclassified Mr. Cross as an independent contractor. This misclassification had a significant, negative impact on Mr. Cross, and I am hopeful that after reviewing the matter further the City will work with us to reach a fair resolution of his claims in light of his dedicated and positive service to the City for more than 30 years. Mr. Cross's Classffication History with the City For the entire duration of Mr. Cross' work relationship with the City, he was classified as an independent contractor. He initially began providing these services in 1993. The last written contract the City entered into with Mr. Cross is one dated October 22,2014 ("Contract").r After one extension on March 15,2018, the Contract expired by its own terms on June 30, 2020. As you noted in your letter, the City notified Mr. Cross on July 14,2020, that the Contract had expired on June 30,2020, and that it intended to continue it on a month-to-month basis. From that date forward, Mr. Cross continued to provide the same services to the City without intemrption until October 31, 2025, when the City purported to terminate the Contract. I M.. C.os billed his services through his entity, FS Collections, but this entity was formed by Mr. Cross for the sole purpose of making a proposal to the City in 2014 and providing services per the City's requirements; however, Mr. Cross personally performed the coin collection work for the City, as the City's own personnel will be able to ffi,, un6 neither he or FS Collections ever provided these or any other services to any other entity or person. 711 Tank Farm Road, Suite 115 P,O. Box 730 San Luis Obispo, CA 93406-0730 ph Bo5/s43-4171 fx BO5/543'O752 2739 Santa lvlaria \ /ay, Third Floor P.O. Box 1430 Santa ivlaria, CA 93456-1430 ph BO5/937-t40o fx 805/937-7444www.amblaw.com 'ldkitlg C01e of BLtsinessJ'ol Over 75 yeors. Christine Dietrick January 20,2026 Page 2 Impact of the Evolution of CA Law on Mr. Cross's Classification As you acknowledged in your letter, California adopted the ABC Test in 2018 in Dynamex Operations West Inc. v. Superior Court.2 But even before the Dynamex decision in 20I8,the law regarding independent contractors had started to change. The courts were applying the common law test and the Borello test, but in a way that had become more protective of employee rights, as reflected in decisions like Estrada v. FedEx Ground Package Systems, Inc.3 As in this case, the Estrada case facts included the existence of a clear written agreement in which both Fed Ex and its drivers agreed that the drivers were independent contractors who had discretion to decide the "manner and means" of reaching "mutual business objectives." Nevertheless, the court in that case concluded that the Federal Express drivers were employees, applying the common law test. Although the issue in that case was limited to expense reimbursements, several courts subsequently reached the same conclusion that Fed Ex drivers are employees not independent contractors based on California law as well as the law of other states' laws. ,See Alexander v. Fed Ex Ground Package System, Inc.4 (holding that drivers were employees for purposes of unpaid wages and expense reimbursement under California law) and Slayman v. Fed Ex Ground Package Systems, Inc) (holding that drivers were employees for purposes of unpaid wages and unlawful deduction from wages under Oregon law). These cases were part of a trend that is attributed to the greater scrutiny of independent contractor classifications that started to occur in2007 as the country began the Great Recession and saw declines in state tax revenue and the rise of companies offering "gig" work. California passed a law around this time penalizing employers for the willful misclassification of employees as independent contractors. (Labor Code $226.8) By 2015, sixteen states adopted some version of the ABC test. California courts followed this trend and stopped looking primarily for the indicia of control evidence and instead began taking a narrower view of independent contractors as workers who had specialized skills and were only occasionally needed. This approach culminated in the adoption of the ABC Test in Califomia in the Dynamex case. In Dynamex, the Califomia Supreme Court noted that the focus on "control" as the primary factor had taken hold when the question of independent contractor classification arose in the tort context, but subsequeni cases, including S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations6, had 2 Dyno*"* Operations LVest Inc. v. Superior Court in 2018.(2018) 4 Cal. 5th 903. 3 Estrada v. FedEx Ground Package Systems, Inc. (2007) 154 CaL App.4'h 1' a Alexander v. Fed Ex Ground Package System, Inc. 765 F.3d 981, 988 (9th Cit.2014). s Sloy*o, v. Fed Ex Ground Package Systems, Inc. 765 F.3d 1033, 1042 (gth Cit.2014). 6 S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d341. 851847 ANDRE, MORRIS BUTTERY :\ P ro lbss kt nul L av' L' or trtor a t i ort Tdkiltg Cdrc E BLtsinessJ'ol Ovet 75 Yeors. Christine Dietrick January 20,2026 Page 3 considered this factor in the broader context of employment taking into account the strong public policy underlying statutes goveming employment. This is why the California Supreme Court in Dynamex not only held that the stricter ABC Test applied but also held that a worker will be presumed to be an employee, placing the burden on the hiring entity to prove all three requirements of the ABC Test have been met to overcome that presumption. The fact the California Supreme Court held in Vazquez v. Jan-Pro Franchising Int'1, Inc. in 2021that the Dynamex holding applied retroactively only further reflected how the courts' perspective on independent contractor classifications had changed and had become more "hostile" toward independent contractor affangements. This change was in line with the change in legislation too, as reflected by the Califomia Legislature's decision to codify the ABC Test into law when they passed Assembly Bill (AB) 5. (Labor Code $ 2775) Mr. Cross worked for the City throughout this evolution. By 2014 when the Contract was awarded to him, a court applying the common law or the Borello test would have likely recognized that Mr. Cross was not in fact working as an independent contractor, despite what the Contract stated. Rather, Mr. Cross was more akin to the drivers who worked for Fed Ex --- working on a regular and consistent basis only for the City, according to a collection schedule set by the City, which he began and ended from the City's Mobility Services office that he accessed using a key issued to him by City personnel, performing duties according to the step-by-step instructions of the City, while wearing a shirt that had a City patch and a City Parking Services hat and under the daily supervision of City personnel. He was frequently asked by other City employees if he would be attending the Public Works BBQ as they assumed he was also a City employee since he was in the City offices daily, performing work only for the City, training new employees on how to do their jobs counting what he collected and opening and closing the safe where the coins were kept. In the City's office, he used the copy machine, locker, desk, phone, and other office items, and he attended to things in the office like putting the trash into the storage room since no one else in the office felt the trash removal was part of their duties. In short, by at least 2014, Mr. Cross was working like an employee and not an independent contractor. Before Dynamex, employment practitioners like me could count on at least being able to argue that a court should give greater weight to factors that militated toward a finding of independent contractor. After Dynamex though, workers like Mr. Cross were presumed to be employees and most, like Mr. Cross, did not meet the ABC Test. This conundrum for employers only got worse when the court in Vazquez held that the holding in Dynamex applied retroactively. Many employers did what the City did and took no action one way or the other. Thus, it is not surprising that the City did not renew the Contract with Mr. Cross in July of 2020 but maintained the status quo by just letting Mr. Cross continue to work for the City as he had 851847 ANDRE, MORRIS BUTTERY :\ lrrqlbssbnul Lnw Corporuliut 1Akiilg C(lrc of BLtsiness J'ot' Ovet 75 Yearc. Christine Dietrick January 20,2026 Page 4 done since 1993 but without formalizing the relationship in writing. By the time the City issued a Request for Proposals ("RFP") in2022, it had become clear that the City either needed to contract with the type of large, independent businesses other municipalities were using, or hire Mr. Cross or someone else to handle the duties as an employee. The public record reflects that in response to the 2022F.FP, the City only received two bids: one from Mr. Cross and one fromLAZ Parking. The City never accepted either proposal. Had the City acceptedLAZ Parking's proposal, the coin collection services would have been performed by personnel employed and assigned by LAZ Parking wearing their own uniforms and using their substantial tools, fleet vehicles and other equipment, as reflected by their proposals and records of the performance of their services in other jurisdictions. Of course, we do not know why the City ultimately did not select LAZParking's proposal, but presumably LAZParking's negative reputation and pending legal issues were factors the City considered in evaluating whether to make this change. At that time,LAZ Parking was the subject of a broad EEOC investigation (See U. S. Dept of Labor press release dated II-14-2022) and the company had also been sued for class wide wage and hour violations (See USDC Case #17CV01545). Cities who have used LAZ Parking have received complaints from members of the public about their experience with LAZParking employees. In contrast, Mr. Cross was well regarded by both the City staff and the public. While collecting coins, he served as a kind of concierge to the public. He was frequently stopped and asked by tourists for directions or for other assistance because they assumed he was a City employee. He would pick up trash along his route. He would assist people who were having problems with the meters. Thus, it is not surprising that the City elected not to switch to a real independent contractor likeLAZ Parking but instead continued to work with a trusted individual who had worked well alongside the City's staff on a regular and consistent basis for decades. Rather than do the right thing though and change Mr. Cross's classification to employee atthat point, the City did nothing again but just continued to accept the benefits of Mr. Cross's continued dedication and work without either accepting his RFP or bringing him on as an employee. By 2022, the City personnel were well aware that only Mr. Cross was personally performing the coin collection services and working the way an employee works, as discussed above, reporting to the City's Mobility Services Office on Chorro at 8 a.m., using a key he had been issued by the City, sharing an office with another City employee (Angela Kelly), following a route and schedule that was set by the City while using City-owned tools and equipment and wearing a shirt with the City's name and insignia on it, as well as a City-issued hat with the City of San Luis Obispo's name and insignia on it. The City knew Mr. Cross was not running a business likeLAZ Parking with other customers but was only working for the City and in away that other City employees worked. 851847 ANDRE, MORRIS BUTTERY A I'rofessh nd La*' C o r porn t ittt t Taking Care oJ BLtsiness J'ot' Over 75 Yedrs. Christine Dietrick January 20,2026 Page 5 I reviewed your analysis of the ABC Test vis-d-vis Mr. Cross. In my experience, your analysis is not consistent with how the CA Dept. of Labor Standards Enforcement or the courts analyze independent contractor misclassification cases since 2014. In my experience, both the DLSE and the courts have consistently required proof that a worker be in a contractual relationship that looks more like the plumbing company that is called to fix a leak at the company's offices. In other words, they look for evidence that the contractor is a business like LAZParking that provides the same specialized services to multiple businesses and municipalities. Relationships like the one the City had with Mr. Cross, where the worker performs services only to a single business under supervision by the employer and alongside other employees for an indefinite period of time, have consistently been determined by the DLSE and the courts as falling short of establishing an independent contractor relationship under either the common law, Borello or the ABC Test. The fact these duties are now being performed by a City employee will only further support a finding that Mr. Cross should also have been classified as an employee. It makes no difference if both the hiring entity and the worker signed a contract stating they agreed to an independent contractor relationship. All that matters is whether or not the hiring entity can establish that the worker was an independent contractor or not. With regard to the ABC Test specifically, the City will have to prove that all three requirements of the test were met, which the City cannot. I have highlighted below the evidence that will prevent the City from meeting the ABC Test and overcoming the presumption that Mr. Cross was an employee. Note that I have not addressed below the second requirement (that the worker perform work that is outside the usual course of the hiring entity's business) because, as discussed above, this type of work can and is outsourced by municipalities but only if the contractor meets the other two requirements. As reflected below, the City will be unable to present evidence meeting the other two requirements' ABC Test Requirements Evidence 1. The worker is free of control and direction of the hiring entity Every aspect of Mr. Cross's daily activities was controlled and at the direction of the City. - he was advised he had to report to the City office by 8:00 a.m. and complete his daily work by 4:00 P.m. - he was told the schedule for each of the zones to be collected - he was required to follow the city's step-by-step instructions for collection to ensure strict oversight (as discussed below) - he was required to wear a shirt with the City's emblem and a City- issued hat - he was required to use City equipment that is not specialized equipment other than the meter keys 851847 ANDRE, MORRIS BUTTERY :1 I'rofessbnul Law Cot'p{rretidr leking Care of BLtsinessJ'or Over 75 Years. Christine Dietrick January 20,2026 Page 6 I recognize that you dispute the evidence that I have described above, but the City personnel who worked every day in the Mobility Services office with Mr. Cross will be able to attest to the above evidence. Mr. Cross was considered to be a co-worker by the other City staff, as evidence by the way they interacted with him on a daily basis, as well as by the fact he was invited to things like co-workers' retirement parties and included in group emails sent to City employees. These co-workers will be able to attest to how Mr. Cross showed up for work every day like they did, wore a City uniform that looked like theirs, sat at a desk in a City office like they did, and interacted with a supervisor on a regular and daily basis. These same witnesses will not testify that they thought Mr. Cross had a company that provided coin collection services, or that they saw anyone else other than Mr. Cross come to their offices and perform these duties. The strict procedure Mr. Cross was required to follow and the supervisory oversight of his work was put into place to ensure that Mr. Cross did not in fact work independently due to the risk of monetary loss and the needfor control. In other words, the City will necessarily have to admit that it instituted strict procedures to ensure proper oversight and control. ABC Test Requirements Evidence 3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed for the hiring entity. Mr. Cross does not operate a business likeLAZ Parking. He is not and never has been engaged in an independently established parking coin collection trade, occupation, or business. The City is the only entity that Mr. Cross did this work for since 2005. The fact that Mr. Cross entered into a contract with the City using an entity he formed atthat time (FS Collections) will not be evidence of an "independently established trade, occupation or business" required to meet this factor. It has been well established that what the hiring entity must be able to establish is that the worker actually did the same work for other customers. A11 of the City personnel who worked with Mr. Cross knew that this was his only "gig." Even if the City can present evidence that they initially thought Mr. Cross had formed FS Collections in order to submit RFP's to other municipalities, this will be insufficient because the evidence required to meet this factor is not evidence that the worker might be providing the same services to other customers but that the worker actually is doing so. Since Mr. Cross has not ever provided parking collection coin services to any other business or municipality, the City will not be able to provide any evidence to meet this requirement as such evidence does not exist. 851847 |!$"Ht,?. :!::,:::i l-aking Care of BLlsinessJor Over 75 Yedrs. Christine Dietrick January 20,2026 PageT I understand your point that perhaps the City leadership executives may not have known that Mr. Cross was not running a coin collection business, but a hiring entity cannot turn a blind eye to evidence that someone is not actually engaged in an independent business. For example, Mr. Cross submitted the proof of insurance the City required, which clearly reflected he did not have workers' compensation insurance, yet no one at the City questioned how he could run a business providing coin services to the City and other municipalities without having employees and carrying workers compensation insurance. Under the ABC Test, the City will be required to present evidence that establishes that Mr. Cross was in fact engaged in an independent business, which the City will not be able to do because Mr. Cross was not engaged in an independent business but instead employed exclusively by the City. Additionally, the knowledge of the City's lower-level managers who worked with and around Mr. Cross will be imputed to the City Additionally, in this small town, even some members of the City Council were well acquainted with Mr. Cross and knew he worked exclusively for the City collecting the meters. The Impact of Misclassification on Mr. Cross Throughout the time he worked for the City, Mr. Cross thought he had no choice but to accept the classification of independent contractor specified by the City. From his perspective, he would have much preferred the security and benefits City employees enjoy but did not believe this was an option. Mr. Cross had also been led to believe that he was in the third year of a five-year contract since he had submitted a proposal to the last RFP in2022 and been retained by the City even though his proposal was not formally accepted. City personnel repeatedly assured him that they were going to get him a signed contract eventually, and Mr. Cross relied upon these assurances to his detriment. After all of his years of service, Mr. Cross thought he could at least count on the City keeping him on until his planned retirement rn2027, but the City kept him in the dark until he was informed in August that he was being let go on October 31,2025. Even the City's own staff report dated 8.L2025 reflects that the Parking Program staff knew that Mr. Cross "is likely unaware of the City's intent to make this operational change." It also offers no explanation for the City's failure to address this issue sooner when the Contract expired or even later when the RFP proposals were received, other than suggesting the inaction was due to "staffing transitions." This evidence could lead a court to conclude that the City's misclassification of Mr. Cross at least by 2022 was willful. Although Labor Code section226.8 is not applicable to public entities, evidence that the City was aware Mr. Cross was misclassification but did nothing will likely influence a judge or jury's view of the evidence in favor of Mr. Cross. 85 1847 ANDRE, MORRIS BUTTERY A ProJess ionul Lau' C or portttiort l'dki|lg Core of BllsinessJot'Over 75 Yeors. Christine Dietrick January 20,2026 Page 8 Mr. Cross's misclassification as an independent contractor meant that he was denied the rights and protections afforded to employees of the City. He did not receive sick pay or pay for all hours worked during and outside of the regular collection hours at the applicable minimum wage. He was not provided with health insurance benefits or the protection of workers compensation insurance or statutory family medical leave rights. He also was not provided retirement benefits, vacation and other rights and benefits afforded to City employees under the collective bargaining agreement during his tenure. Finally, by misclassifying Mr. Cross as an independent contractor, the City also avoided payment of social security and Medicare taxes. We are working on quantiffing the value of this loss but know the loss is not insignificant. Please let me know if we could schedule a call soon to discuss this matter further. I appreciate your willingness to do so as we would like to explore an informal resolution before filing a Government Claims Act claim. Sincerely Kathryn M V-+r re+ Eflpright Cc: Brett Cross Edwin Rambuski, Esq KME4b 851847