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California Supreme Court Issues Conclusive Opinion on Who’s a Joint Employer

 

Today’s blog written by star intern Monica Baranovsky. Thank you, Monica! Also, I am referencing information from this impressive blog written by Michael Kun and Aaron Olsen in my edits of the summary.

Who is a "Joint Employer" for the purposes of unpaid wages?

Who can be considered a joint employer in California is something that has been litigated in the past, including whether or not an individual may be considered liable on behalf of a corporation. However, the California Supreme Court has not stepped in to help define the scope of what or who an employer is, until very recently. Martinez v. Combs finally addresses this point of law, defining an "employer" under California wage law for the purposes of liability.

In Martinez, a group of seasonal agriculture workers had worked during the 2000 strawberry-picking season. These workers sued their employer, Munoz & Sons, for unpaid wages, but Munoz & Sons was granted a discharge in bankruptcy. Looking elsewhere to recover their substantial unpaid wages, they also sued two produce merchants through which Munoz & Sons sold their strawberries. Plaintiffs filed suit under Labor Code section 1194 and contended that the Industrial Welfare Commission’s (IWC) wage order No. 14-2001, called "Order Regulating Wages, Hours, and Working Conditions in the Agricultural Occupations" (Cal. Code Regs, tit. 8, section 11140) or Wage Order No. 14, defines the defendants as their employers for purposes of section 1194. Id.

The Court looked at and rejected numerous ways of defining "employer" as argued by both plaintiff and defendant. Instead, it found: California Law does not incorporate the broad "economic realities" definition of an employer used under the federal FLSA as argued by the defendants. Rather, the California definition of an employer includes "only entities which have the practical ability to prevent the alleged violations – in other words, those parties with the power to hire and fire, set wages, or tell workers when and where to report to work."

As Kun and Olsen wrote, the court specifically found that "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 benefited 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.” To see this summary, click here.

Generally, the court in this decision has made it clear that a true employer can’t hide from liability by using a “straw man” arrangement by which they exercise control.

Kim and Olsen concluded with this: “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.”