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California Supreme Court Pro-Business Ruling in Wage and Hour Suit

Martinez v. Combs arose from the strawberry farming operations during the 2000 strawberry season. Seasonal agricultural workers harvested strawberries for Munoz & Sons. The strawberries were sold through several distributors. Munoz & Sons had different contracts with each merchant.

At the height of the season, Munoz & Sons employed 180 workers. Unfortunately, toward the end of the harvest, the market for fresh strawberries deteriorated and Munoz & Sons began to have problems paying its workers. A complaint was made to the Department of Labor Standards Enforcement ("DLSE") alleging that the employees had not been paid for several weeks. The DLSE conducted and investigation and found Munoz & Sons liable. Munoz & Sons were able to make only a partial payment of the wages to the employees. Thereafter, Munoz & Sons filed bankruptcy.

Several workers filed a lawsuit against Munoz & Sons, and the distributors seeking payment of the remaining wages owed, plus penalties. Munoz & Sons was granted a discharge in bankruptcy. The distributors filed motions for summary judgment on the grounds that they were not the employer. The case made its way to the state’s highest court.

One of the claims asserted was a violation of Labor Code section 1194, which grants an employee a cause of action for unpaid minimum wages but does not specify who is liable. Labor Code section 1194 was enacted in 1913 as part of the act that created the Industrial Welfare Commission (IWC) and granted it the power to fix wage rates, working hours, and standard conditions of labor. After a lengthy examination of the historical context and statutory construction, the Court found that the Legislature intended to defer to the IWC to define the employment relationship in actions under that statute.

Under the IWC’s wage order No.14-2001, entitled "Order Regulating Wages, Hours, and Working Conditions in the Agricultural Occupations," there are three alternative definitions of what it means to employ another: (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.

Plaintiffs argued that the distributors met the definition of employer because they worked closely with the grower to ensure the quality of the fruit. The Court disagreed and found that the produce merchant did not hire or fire the workers, set their wages or hours, not supervise their work, pay them, provide tools and equipment, or pay for workers’ compensation insurance. The distributors merely decided where the fruit was to be sold.

The Court also rejected plaintiffs’ contention that because the produce merchants benefited from their labor, they should be liable for the unpaid wages. If true, the Court noted, then grocery stores and consumers could also be liable, which would be an "unreasonably broad" interpretation of the IWC’s wage order.

In the 97 years since the enactment of Labor Code section 1194, the California Supreme Court considered the question of how to define employment under the statue only once, in Reynolds v. Bement (2005) 36 Cal.4th 1075. Reynolds holds that the IWC’s definition of employer does not impose liability on individual corporate agents acting within the scope of their agency.