Defining Who is an "Employer" Under California and Federal Wage Laws

Bryan Schwartz Law's principal recently spoke at the State Bar of California's 2014 Annual Meeting on the subject of defining a liable "employer" under California and federal wage laws. His paper presented at the conference is available here.

Mr. Schwartz's perspective, articulated in previous articles on this blog (see, e.g., this July 2013 post), is that the 2010 Martinez v. Combs decision in the California Supreme Court redefined the definition of an "employer" under California law, for overtime, minimum wage,  meal/rest period, and other claims arising from the Wage Orders. The new, broader standard rejects the prior Reynolds v. Bement decision's narrower "employer" definition, articulating that an "employer" is one who 1) controls the wages, hours, or working conditions of an employee, or 2) suffers/permits him/her to work, or 3) "engaged" the employee to work, as defined by the common law. Under this broader standard, individual owners who meet any part of the three-prong test, and a variety of companies and agencies exercising control, can be "employers" liable for labor code violations. 

The Private Attorneys General Act of 2004 (PAGA), Labor Code section 2698, et seq., makes any individual liable for penalties under Labor Code section 558 for violations of numerous Labor Code provisions, and for the employees' attorneys' fees and costs. 

Under Business and Professions Code section 17200, employers benefiting from stealing wages may also be liable for restitution - the Code implicates any party unjustly enriched by a practice.

Under Labor Code section 2802 - involving failure to reimburse workers - the relevant test appears to be California's four-prong "integrated enterprise" test. A well-reasoned, recent decision by the United States District Court for the Northern District of California by Judge Lucy Koh, Trosper v. Stryker, 2014 WL 1619052 (N.D. Cal. April 22, 2014)  adopts this test, invoking the California Court of Appeal decision in Laird v. Capital Cities/ABC, Inc., 69 Cal.App.4th 727 (1998) (overruled on other grounds by Reid v. Google, 50 Cal.4th 512 (2010)). The test considers: 1) centralized control of labor relations; 2) interrelation of operations; 3) common management; and 4) common ownership or financial control.

When the question is whether someone is an employee or independent contractor, the common law test is defined in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relns., 48 Cal.3d 341 (1989) - which would only seem to affect the third prong of the Martinez v. Combs analysis - i.e. traditional agency principles. However, how Martinez v. Combs affected the definition of an "employer" where the employer is claiming the worker was an independent contractor may be answered in the Supreme Court's impending decision in Ayala v. Antelope Valley Newspapers (see our discussion of Ayala here).

The definition of an "employer" under federal wage laws has always been broad - and recent case law only reaffirms Lambert v. Ackerley, 180 F.3d 997 (9th Cir. 1999) and other jurisprudence discussing the expansive interpretation given to the Fair Labor Standards Act (FLSA) definition of "employer." What is new are authorities indicating that California's definition of a covered "employer" is now broader than the federal protection. See, e.g., Carrillo v. Schneider Logistics Trans-Loading & Distribution, 2014 WL 183956 (C.D. Cal. Jan. 14, 2014) (citing Guerrero v. Sup. Ct., 213 Cal.App.4th 912, 945 (rev. denied June 12, 2013)).

Stay tuned to see whether California will continue its trend to embrace the nation's strongest worker protections in Ayala....