The California Supreme Court gave employees a new weapon in the ongoing wage and hour litigation explosion. In Martinez v. Combs, the Court adopted an expanded definition of who is an “employer” who can be sued for wage and hour violations. An employee can still, of course, sue the company that hired him. But after Martinez, that employee may also be able to sue his company’s affiliates and business partners as well.
Facts of Martinez
The Martinez plaintiffs were farm workers hired to harvest strawberries. They were hired by Munoz. Munoz sold his berries to several distributors. The distributors advanced money to Munoz in exchange for the exclusive right to distribute fresh berries from his fields. When the market price for berries dropped, Munoz became unable to pay his workers and filed bankruptcy. The plaintiffs sued Munoz and the distributors for unpaid wages.
The Supreme Court determined that an “employer” subject to suit for unpaid wages is any one who: (1) exercises control over an employee’s wages, hours, or working conditions; (2) suffers or permits the employee to work; or (3) hires the employee. Any one of the three will do. The Court rejected the narrower “economic reality” test applicable under federal wage and hour law – employer is the entity who hires and fires, sets wages and working conditions, supervises employees, and maintains employment records – holding that California law was broader than the federal law. The Court also rejected the employee’s “downstream benefit” test – whoever directly benefited from plaintiffs’ labor should be considered plaintiffs’ employer – largely because it would impose endless liability on those in the chain of distribution.
When the Court applied its three-prong definition to the facts in Martinez, it ultimately concluded they were not plaintiffs’ “employer.” The Court noted that Munoz, and Munoz alone, exercised control over his employees. Furthermore, Munoz’s supply contracts with the distributors expressly precluded them from directing his employees’ work. Finally, no evidence indicated any of the plaintiffs believed that the distributors were authorized to direct the plaintiffs’ work. For all of these reasons the Martinez court held that defendants were not joint employers and could not be held liable for plaintiffs’ unpaid wages.
The Martinez Court also reaffirmed its 2005 decision in Reynolds v. Bement that a corporate agent acting within the scope of his or her agency cannot be held individually liable for the corporation’s failure to pay wages. However, the Martinez case limited the Reynolds to the extent Reynolds indicated that common law – i.e., who hired whom – was the sole definition of employer for these purposes.
What Martinez Means For Employers
It is unclear at this point how far Martinez will go. Plaintiffs will likely use Martinez to sue entities other than their primary employer for unpaid wages (and overtime, and meal and rest break violations, etc.). In addition, the factual nature of the “suffer and permit” and “exercises control” prongs of the Martinez definition may limit the ability of more “indirect” employers to obtain pre-trial dismissal of these claims. Martinez probably means that the wage and hour cases will continue to be popular among plaintiffs’ counsel, and that the entities involved as defendants in those cases will expand to include business partners, affiliates, vendors, etc., of the main employer defendant.
Employer Action Items
In light of Martinez, companies should carefully review relationships with third parties to ensure that they do not exercise control over or “suffer or permit” their business partners’ employees’ work. Companies should also consider other risk-shifting vehicles in their commercial contracts and relationships, to avoid exposure to liability for the unpaid wages of third-party employees.
If you would like additional information about the Martinez case, its potential impact, and what you can do to mitigate your risk, please contact your Archer Norris employment lawyer.
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– Kevin M. "Casey" Christensen, Employment Team Leader
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