by Michael Kun and Aaron Olsen
Already besieged by wage-hour lawsuits, employers with operations in California may see more of these cases, or may be brought into wage-hour litigation where they might not have been before, as a result of a new decision by the California Supreme Court expanding the definition of "employer." The decision creates greater exposure to litigation for those companies that use the services of independent contractors, temporary agencies or other similar entities with whom the employer has a close relationship.
The plaintiffs in Martinez v. Combs were seasonal agricultural workers who picked strawberries for Munoz & Sons (“Munoz”). Munoz sold strawberries through a number of merchants, including Apio, Inc. (“Apio”) and Combs Distribution Co. (“Combs”). The merchants would routinely enter the strawberry fields to describe how they wanted the strawberries packaged and to check the quality of the packaged strawberries before they shipped. The merchants would point out mistakes to Munoz's foreman, as well as directly to the strawberry pickers. After the price of strawberries declined, Munoz failed to pay its strawberry pickers and subsequently declared bankruptcy. In addition to suing their employer, Plaintiffs also sued Apio and Combs for a variety of California Labor Code violations, including failure to pay a minimum wage. The central issue on appeal was whether the strawberry merchants, Apio and Combs, were considered joint employers of plaintiffs under the California Labor Code.
In order to determine whether the strawberry merchants were employers and thus liable for Labor Code violations, the Court examined various definitions of “employer.” After engaging in a lengthy review of 98 years worth of legislative history, the Court adopted the Industrial Welfare Commission’s ("IWC") broad definition of "employer." The Court held that the IWC was authorized by the legislature to define this term as it saw fit, holding that to "employ" someone means: (a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship. In adopting the IWC’s position, the Court rejected defendants’ argument that California law incorporates the “economic realities” test used in the federal Fair Labor Standards Act ("FLSA"). The “suffer or permit to work” definition is the broadest of the three definitions.
The plaintiffs argued that the strawberry merchants, Apio and Combs, “suffered or permitted” plaintiffs to work because they knew plaintiffs were working and the work benefitted the merchants. The Court rejected this argument. The court found that because Munoz, not Apio or Combs, had the power to hire and fire plaintiffs, to set their wages and hours, and to tell plaintiffs when and where to report to work, Apio and Combs did not “suffer or permit” plaintiffs to work. Likewise, although Apio and Combs had representatives in the strawberry fields that gave instructions to plaintiffs, that did not mean that they exercised control over plaintiffs. The court noted that there was no evidence to suggest that Munoz’s employees viewed the representatives of Apio or Combs to be their supervisors. Instead, plaintiffs believed that Munoz and Munoz’s foreman were their supervisors.
Although there will undoubtedly be more litigation about the definition of an employer, Martinez provides useful guidance for companies to evaluate the contracts that they have with their vendors, contractors and temporary employment agencies so that they do not unwittingly become liable for another company’s Labor Code violations. This case illustrates the fine line between conducting quality control over another company’s work product and controlling the conditions of the other company’s employees. Likewise, the case shows how companies can minimize the risk of being classified as "joint employers" if they make it clear in their contract and in practice that the other entity has the sole right to hire, pay, discipline and terminate the workers.