The California Supreme Court has recently expanded the definition of “employer” and what it means to “employ” for the purposes of Labor Code wage and hour violations. In the case of Martinez v. Combs, plaintiffs were seasonal agricultural workers who were seeking to recover unpaid minimum wages. They were employed by Munoz & Sons (“Munoz”) which operated large strawberry farms along the California Central Coast. Munoz had distribution agreements with two produce merchants, Apio, Inc. (“Apio”) and Combs Distribution Co. (“Combs”).When poor market conditions caused a severe drop in strawberry prices, Munoz was unable to pay plaintiffs, which led to litigation. Initially a defendant in the suit, Munoz declared bankruptcy. The case, thereafter, focused on whether, Apio and Combs can be held liable as employers under the Labor Code.
As part of regular business operations, Apio and Combs routinely sent representatives out into the fields to ensure that the workers were picking and packing the strawberries properly, inspect the quality, speak with the foremen, etc. They, however, did not have any supervisory authority, nor did they have any hiring or termination powers. Despite this very limited level of interaction, plaintiffs argued that Apio and Combs should be liable for unpaid minimum wages as employers.
To decide the issue of what it means to be an “employer” and to “employ”, the Court first went through a painstakingly detailed discussion of the history of the Industrial Welfare Commission (“IWC”) and its Wage Orders. Established in the early 20th century, IWC sought to curtail the exploitation of children and women in the workplace. As such, it was authorized by the legislature to define the terms as necessary in order to achieve its goals. IWC used a very broad definition in order to prevent those utilizing child and/or woman labor from avoiding liability by not being “employers” in the technical sense.
The IWC’s definition and one adopted by the Court in this case is: To “employ” means to (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. The “to suffer or permit to work” language in the definition is very broad and can create liability even where a typical employer/employee relationship is not present. According to the Court, the historical meaning of the phrase is just as applicable today: “A proprietor who knows that persons are working in his or her business without having been formally hired, or while being paid less than the minimum wage, clearly suffers or permits that work by failing to prevent it, while having the power to do so.”
In this case, however, the Court found that Apio and Combs were not liable as employers as they did not suffer or permit plaintiffs to work. The representatives that they sent out into the fields were not viewed as supervisors and they did not exercise any control over plaintiffs. They were there simply to make sure that the product they were paying for was satisfactory. The Court found that Apio, Combs and Munoz had a typical “chain of distribution” relationship and imposing employer liability on Apio and Combs would potentially expose others along the chain (i.e. supermarkets, other buyers of produce) to liability. In other words, merely doing business with a company which violates the Labor Code is not enough for employer liability even under the broadest of definitions.
While Apio and Combs avoided liability in this case, the Court’s adoption of IWC’s broad definition of what it means to “employ” means that companies utilizing the services of independent contractors, temporary staffing agencies, etc. should take extra precautions if they wish to avoid lawsuits for Labor Code violations. For instance, if a company contracts with a temporary staffing agency to provide workers and the agency fails to pay the workers minimum wage, the company may be liable under this broad definition. Thus, contracts should be drafted with clear and unambiguous language as to which party has the ability to control, hire, pay, terminate, etc. Even then, turning a blind eye toward obvious Labor Code violations during business operations may very well prove a costly mistake.