Calif. Supreme Court Creates Uncertainty over Wage and Hour Liability

Employers in California should consult with employment counsel to determine if there are situations in which they might be charged with liability for another entity’s wage and hour violations in light of the California Supreme Court decision in Martinez v. Combs.

Employers might be at risk of such liability in cases involving entities such as subcontractors and independent contractors if the employers had knowledge of and "suffered and permitted" violations to occur.

In its decision, filed May 20, 2010, the Supreme Court addressed the issue of which employers in the state might be liable for employee wage and hour claims. The Court rejected total reliance on the common law definition of employer, holding that its 2005 decision in Reynolds v. Bement "spoke too broadly in concluding that the common law defines the employment relationship in actions under [Labor Code] 1194." It also rejected the "economic reality" test used under the Fair Labor Standards Act.

Instead―and in addition to the definition of employer as one who employs or exercises control over the wages, hours, and working conditions of any person―the Court defines an employer as any person who engages, suffers, or permits an individual to work. The Court reached this conclusion after a substantial analysis of the Industrial Welfare Commission and the language used in its wage and hour orders.

Although the Court attempted to set forth boundaries on this new definition―rejecting an interpretation that mere purchasers of products are liable for unpaid wages owed employees who manufacture them―the decision creates uncertainties as to who is potentially liable for wage and hour violations under the "suffer and permit" standard. The Court ultimately affirmed summary adjudication holding that distributors of bulk strawberries purchased from a now bankrupt farmer were not liable for nonpayment of employees' wages. However, to do so, it relied upon a highly detailed analysis of the particular facts of the relationship between the farmer and his distributors.

If you have any questions about the effect of Martinez on your operations, please feel free to contact any member of the Labor and Employment Group.