Written by attorney Elizabeth Raye Ison

Definition of “Employer” for Wage and Hour Liability (Martinez v. Combs)

In Martinez v. Combs, the California Supreme Court concluded that the definition of “employer" for purposes of wage and hour claims may extend beyond the worker’s employer to those companies with whom the employer does business, including their officers, directors and principals. Martinezv. Combs (S121552A,Cal. Sup.Ct., May 20, 2010).

The Court explained that an employer for purposes of wage and hour liability:

• exercises control over the wages, hours or working conditions of the worker, or

• suffers or permits the individual to work, or

• engages the worker, thereby creating a common law employment relationship.

The plaintiffs in Martinez were agricultural workers whose employer, Munoz & Sons, went bankrupt. Plaintiffs sued Munoz and the produce merchants (as an entity and as individuals) that sold Munoz’s harvest for failing to pay minimum wages, waiting time penalties, penalties for failure to provide wage statements and breach of contract.

The California Supreme Court evaluated whether the defendants were subject to suit under Labor Code section 1194, which authorizes any employee not paid minimum wages to sue to recover the money in a civil action. The statute does not identify who the employee can sue. The Court did not have any difficulty inferring that the liable party should be the employer. The Court had a more challenging time determining what “employer" meant for purposes of the statute.

The Court focused on legislative intent to determine who or what was an “employer" for purposes of the statute and related Wage Orders. The plaintiffs relied on two phrases used in the Wage Orders to argue that the merchants were their employers. First, the plaintiffs contended that the merchants “suffered or permitted" them to work because the merchants knew that Munoz would hire individuals to complete the work required by the contract between the merchants and Munoz. Second, the plaintiffs contended that the merchants controlled their wages and hours of work, because the merchants controlled what was paid to Munoz and, in turn, controlled what Munoz could pay his employees.

The Court concluded that the merchants did not “suffer or permit" the plaintiffs to work because the merchants could not prevent them from working. The Court also ruled that the evidence demonstrated that Munoz, and not the merchants, exercised control over the plaintiffs’ wages, hours and working conditions. Munoz was responsible for hiring/firing and training his employees. He also determined the employees’ wages, and told them when and where to report to work, when to start, stop and take breaks and provided their tools and equipment.

The Court found that the individuals sued by the plaintiffs were not employers because they did not offer the plaintiffs employment with the merchants, but instead made suggestions about what the plaintiffs could do to help Munoz in fulfilling his responsibilities under the contract.

Californiaemployers should be mindful of the potential for liability for wages earned by non-employees that, arguably, can make a co-employment argument. For instance, if the employer hires an independent contractor who should be classified as an employee, the employer may be responsible for wage claims asserted by the contractor’s employees.

Individual officers, directors and supervisors also face a risk of liability for unpaid wages. Under prior precedent, principals and supervisors were protected from personal liability unless they exceeded the boundaries of their employment. Post-Martinez, plaintiffs can use the broad definition of employer when alleging their claims (as an alternative to proving acts beyond the scope of employment).

To protect against these potential liabilities, employers should check their insurance coverage to make sure that claims for wages against principals and supervisors are covered by their policies. Employers should also confirm that their policy limits are sufficient to protect them from claims for premium wages and penalties that are available to employees who prevail.

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