One of the trickier issues in employment law is defining who is an employer.  The definitions tend to be vague at best, and circular at worst (such as defining an employer as someone who employs employees).  There was not even agreement as to which definitions applied in California wage and hour cases until last week when the California Supreme Court took a tentative step towards clarifying this issue.

In Martinez v. Combs, the plaintiffs were strawberry pickers whose ostensible employer, Munoz and Sons, went bankrupt without paying them their wages.  The plaintiffs sued several related entities and individuals to try to collect their money.  These included the produce merchants who sold Munoz’s strawberries and several of their principals and representatives.  Munoz retained the rights to hire, fire, train, assign, and set the wages for the employees.  But the merchants had representatives in the fields determining the quality of the produce and instructing as to how it should be packed.

After acknowledging that only employers were liable for unpaid wages, the Court set out to decide who were the employers here.  This involved selecting from a variety of possible definitions, including a definition used by the Industrial Welfare Commission, one used in the federal Fair Labor Standards Act, and those used in case law.

In making its selection, the Court analyzed 98 years worth of legislative history.  I will not attempt to summarize that discussion, except to provide this random historical tidbit: The legislation creating the IWC in 1913 was motivated largely by the desire to provide minimum wages for women, 40% of whom were earning less than $9 per week, which “was having a most disastrous effect on the health and morals of the women workers.”

Ultimately, the Court defined employer as follows:

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.

The broadest part of this definition is the “suffer or permit” language.  It extends, for example to the proprietor of a business who knows (or perhaps has reason to know) that wage violations are occurring on its premises even if it does not directly employ the individuals involved.  The plaintiffs in Martinez argued that this extended to the produce merchants because they benefited from the work in the fields.  But by that line of reasoning, the grocery stores that sold the produce could also be deemed employers.  The court explained that, to qualify as an employer based on the “suffer or permit to work” language, the defendant must have the ability to prevent the individuals from working.  Here that was absent.

There will continue to be litigation over who is or is not an “employer.”  To minimize the chance of getting dragged into those disputes, companies should insist on contract language that:

  • Specifies that the other party is solely responsible for selecting, hiring, firing, supervising, training, assigning, and setting the wages, hours, and working conditions of its workers;
  • Requires the other party to represent that it will comply with all laws applicable to its operations, including wage and hour laws; and
  • Requires the other party to provide indemnity for employment-related claims by its workers.

No matter how the legal definition of employer continues to evolve, it is likely to be significantly broader than the term is generally understood in the business community.