On May 20, 2010, the California Supreme Court issued an important wage and hour opinion that involves the definition of the term "employer" in the context of wage and hour liability.
The plaintiffs were seasonal strawberry pickers who worked for Munoz & Sons, a grower in the Santa Maria Valley. They sued for unpaid minimum wages and also sued four independent merchants who purchased strawberries from Munoz & Sons. Ultimately, Munoz & Sons went bankrupt and the four strawberry merchants were the remaining defendants.
The plaintiffs contended that the merchant defendants were their "employers" because they were involved in the farming process for quality control purposes. The merchants regularly sent field representatives to the farm to ascertain the quality of available strawberries and to explain the manner in which they were to be packed. Also, the merchants assured the workers that they would be paid and encouraged them to continue working when they threatened to walk out on Munoz & Sons. Some of the workers continued to work based on these representations.
The issue before the Court was whether the merchants could be considered "employers" and liable for the alleged unpaid wages and penalties. The California Supreme Court, in a lengthy opinion outlining the historical underpinnings of the definition of "employer" in California, affirmed the Court of Appeal decision that held that the merchants could not be considered employers under California law.
In reaching its holding, the Supreme Court articulated a three-prong definition of the term "employer":
"To employ…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."
Although the merchants had representatives in the strawberry fields who gave instructions to plaintiffs, the Court found that there was no evidence that the merchants had the right to control nor had actual control over wages, hours and working conditions for this factor to be present. It was clear that Munoz and his foremen were present when the field representatives interacted with Munoz's employees.
The plaintiffs also argued that the strawberry merchants, "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 explained that "to suffer or permit to work" historically meant to permit by acquiescence or to suffer by a failure to hinder. But, anyone who suffers or permits another to work must have the power to stop or prevent the person from working. If they do not, they cannot be an employer under this prong of the definition. The merchants did not "suffer or permit" plaintiffs to work because Munoz, not the merchants, had the sole power to hire and fire plaintiffs, to set their wages and hours, and to tell plaintiffs when and where to report to work.
Finally, the merchants certainly did not "engage" the plaintiffs thus failing to satisfy the third prong of the definition which simply means to hire for the purpose of performing work on behalf of the entity that hired the person to do the work. The merchants did not hire the plaintiffs.
Although the merchants prevailed in the case, employers should take note of this decision. Any company that has labor contracts, vendors with employees, or temporary employment agencies should review their contracts and practices in light of this case so that they do not unwittingly become liable for another company's Labor Code violations. This case points out the gray area between conducting quality control over another company's work product and controlling the conditions of the other company's employees.On a positive note, the case shows how companies can avoid being classified as "joint employers" by drafting appropriate language and adopting practices that make it clear the other entity has the sole right to hire, pay, discipline and terminate the workers.
This article is intended for informational purposes only. Nothing herein should be construed to constitute legal advice. It is recommended that you seek legal counsel before making decisions regarding labor and employment matters.