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Wage & Hour Claims – Definition of “Employer” Under California Law

In Martinez v. Combs, 2010 DJDAR 73070 (May 2010), the California Supreme Court ruled that in Labor Code §1194 cases, IWC wage orders defined the “employment relationship” and thereby those persons who could be liable as an “employer” (it distinguished the prior Supreme Court case of Reynolds v. Bement, 36 Cal.4th 1075 (2005), which provided that courts looked to the common law rather than applicable IWC wage order for definition of employment relationship). It also held that IWC wage orders did NOT incorporate the federal definition of employment under the Fair Labor and Standards Act.

Plaintiffs were seasonal strawberry pickers who were not paid minimum wage. They filed suit against their employer, two “produce merchants” through whom the employer sold the strawberries, and the principals and supervisor of a produce merchant. The trial court granted summary judgment in favor of defendants (the employer filed bankruptcy). The appellate court affirmed in part and reversed in part, using the federal “economic reality” test to find defendants were not the plaintiffs’ employer.

The Supreme Court noted Labor Code §1194 did not define the employment relationship or who was liable under the statute for unpaid wages, but determined that the Legislature intended for the IWC to do so though wage orders (entitled to “extraordinary deference”). Further, while the common law employment definition might play a role in the IWC’s definition of employment relationship,1 it was only one alternative in the IWC’s multi-pronged employer definitions, namely:

  1. To exercise control over the wages, hours or working conditions
  2. To suffer or permit to work
  3. To engage, thereby creating a common law employment relationship

Based on the specific facts, the Supreme Court held that defendant produce merchants, their principals and supervisor did not employ plaintiffs under any of the 3 alternate definitions.

What is the impact of Martinez going forward? The IWC definitions are quite broad. This ruling will enhance plaintiffs’ ability to file suit against a wider array of target defendants e.g. managers, supervisors, business owners & principals.

Under the first test, plaintiffs must show facts that defendant exercised control over their wages (pay, including increases or decreases), hours (work schedules, with hours worked) or working conditions (where & how work is to be performed).  Under the second test, plaintiffs must show that defendants knew plaintiffs were working in their business without having been formally hired or were being paid less than minimum wage; in that event, the defendants “suffered or permitted” the work (and the basis for their liability will be knowledge + failure to prevent such work). Under the thirdtest, plaintiffs must show that defendants “engaged” or employed them in the plain, ordinary sense of the word.

Business owners, managers & supervisors should be aware that under the more expansive IWC wage order definitions, they could be held personally liable as an “employer” for unpaid wage claims if their actions fit into any one of the three categories!

1 The Supreme Court limited Reynolds to its facts (IWC definition of employer did not impose liability on individual corporate agents [officers & directors] acting within the scope of their agency), since if the common law was the exclusive guideline it would render the IWC’s definitions meaningless.

Article written by:
Neil Klein