California Supreme Court Addresses Employer Definition for Wage and Hour Liability in California
Last week, in Martinez v. Combs, the California Supreme Court issued an important wage and hour opinion.
The plaintiffs in Martinez were seasonal strawberry pickers. They worked for Isidoro Munoz, who did business as Munoz & Sons. They sued for unpaid minimum wages. Munoz and Sons went bankrupt. The remaining defendants in the lawsuit were merchants who purchased strawberries from Munoz and Sons. The merchants had some limited involvement in the farming process. They regularly sent field representatives to the farm to ascertain the quality of available strawberries and to explain the manner in which they sought them to be packed. The merchants also encouraged the plaintiffs to keep working at one point where they were threatening to walk out on Munoz due to non-payment of wages for several weeks.
At issue was whether the merchants could qualify as employers of the plaintiffs and therefore be liable for the alleged wage and hour violations and associated penalties. The California Supreme Court, after an extensive analysis of the proper definition of the term “employer” for purposes of section 1194 of the Labor Code, affirmed the Court of Appeal decision that held that the merchants did not exercise sufficient control over the plaintiffs or over Munoz’ agricultural operation to be considered employers under California law.
In reaching its decision, the California Supreme Court held: “To employ, then, under the IWC’s definition, has three alternative definitions. It 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 explaining (a), the Court noted that the employer[s] need not have control over wages, hours and working conditions, but merely must have actual control of wages, hours or working conditions and discussed the difference.
In clarifying (b) “to suffer or permit to work,” the Court held that anyone who suffers or permits another to work must have the power to stop or prevent the employee from working. A person or entity who does not have the power to stop someone from working, can not suffer or permit them to work and therefore cannot be an employer under this prong of the definition.
“To engage" someone to work, as set forth in prong (c) means that you are the actual entity that hired the employee to do the work.
After explaining the definition at length, the Court applied it to the strawberry merchant defendants and after application and analysis, held that the merchants did not qualify as employers under any of the three prongs and therefore summary judgment was properly upheld by the Court of Appeal.
There are a number of important lessons to be derived from this case:
1. The definition of “employer” derived at by the California Supreme Court will not be limited to section 1194 of the Labor Code and is likely to be applied generally to other Labor Code provisions giving rise to certain responsibilities for payment of wages to California employees;
2. When trying to determine if you are an employer for wage and hour liability purposes, three separate analyses must be made and qualification under any one of them will render an employment relationship;
3. Although the actual holding in the case favored the defendants, the language and revamped definition of “employer” would seem to broaden the scope of who fits within that category and in the opinion of this author is more likely to widen the net on wage and hour liability in many situations;
4. When engaging in business to business contracting where your business or managers will be in contact with the other parties’ employees, careful attention should be paid to whether or not the relationship places any risk on the establishment of an employer/employee relationship and if so appropriate indemnification and related contract provisions should be considered; and
5. If you contract with temporary services, these issues must be addressed in the contract. Existing temporary service contracts and the nature of such relationships should be reviewed in light of this decision.
For a complete copy of the Martinez decision, please click here.