A proposed bill would impose criminal sanctions for failing to pay final wages timely.
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California Employment Law Update:
California Legislature Seeks
New Employer Restrictions;
Cal Supreme Court Defines “Employer”
By Christopher W. Olmsted
In addition to AB 482, described in the previous article, regarding restrictions on the use of credit checks, a few other bills hostile to employers are pending in Sacramento.
AB 2773
This bill would seek to overturn a recent California Supreme Court decision titled Chavez v. City of Los Angeles, where the Court upheld the denial of attorney fees to a successful plaintiff in an employment discrimination case. In California, cases worth under $25,000 should be filed as “limited jurisdiction” cases, where the rules scale down the litigation procedures. But in Chavez, the plaintiff filed an unlimited jurisdiction case, only to be awarded less than $25,000. The court refused to award attorney fees because of this jurisdictional issue, despite the fact that the Fair Employment and Housing Act would permit the award of fees. The bill would remove the court’s discretion to deny fees in such cases.
AB 2187
Currently there are monetary penalties for failing to pay an employee his or her final wages upon termination. This bill would make it a crime if such wages were not paid within 90 days of termination. The bill would subject employers (potentially managers) to a misdemeanor punishable by a minimum $1,000 fine (maximum of $10,000), or by imprisonment in a county jail for a maximum of six months, or by both.
AB 2727
This proposed law could significantly restrict criminal background checks. Existing law provides that an employer may not ask an applicant for employment to disclose, and an employer may not utilize in an employment-related decision, information concerning an arrest or detention that did not result in a conviction. This bill, in addition, would prohibit an employer from denying an application for employment for the reason that the applicant has previously been convicted of a criminal offense unless the employer determines that there is a direct relationship between the prior conviction and the employment sought or the granting of employment would involve an unreasonable risk to property or persons.
Cal Supreme Court Considers Whether Company Liable For Vendor’s Employee Wages
While the legislature has been cooking up new laws for employers, the California Supreme Court in a May 2010 case titled Martinez v. Combs, addressed fundamental technical questions regarding who is an employer and who may be held liable for unpaid wages.
Believe it or not, something as basic as the definition of “employer” has been a subject of debate in California. Labor Code Section 1194, which allows a civil suit for minimum wages or overtime, does not define who is an employer. The Industrial Welfare Commission’s wage orders contain a general definition that an employer is “a person who…employs or exercises control over the wages, hours, or working conditions of any person.”
The ambiguity in the law leaves openings for disputes between employees and their employers. Employee advocates argue that the definition is very broad, basically encompassing anyone who has any sort of influence on the employment relationship. Employers of course argue for a narrow definition that includes the traditional economic concept of who pays the wages.
Strawberry Fields Forever
When a strawberry farmer in Santa Maria Valley went bankrupt, the fieldworkers did not receive their paychecks. They sued the produce merchants who had leased the land to the farmer. They alleged that the merchants were their “employer” based on a variety of facts.
The workers filed a lawsuit, where they alleged defendants were liable for unpaid minimum wages, liquidated damages for unpaid minimum wages, unpaid contract wages, waiting time penalties, penalties for failure to provide wage statements, and breach of contract.
The merchants argued that they were not the employer. The farmer had previously hired the workers and paid their wages. He owned his own equipment and paid his own business expenses, including plants, fertilizer, pesticide, irrigation, fuel, packaging, and rent for additional trucks, a large tractor and field toilets. He contracted with the merchants to lease the land and to sell the berries.
On the other hand, the employees argued that the merchants and the farmer jointly employed the workers because they both exercised control over their jobs. The merchants regularly sent field representatives to ascertain the quality of available strawberries and to explain the manner in which they were to be packed. The merchants knew the farmer would hire the workers to work for the benefit of the merchants. The merchants controlled when they paid the farmer, and thus when the farmer paid the workers. Moreover, after a work stoppage for lack of pay, one of the merchants promised that the workers would get paid in order to persuade them to return to work.
Court Picks the Broader (Employee Favored) Definition of Employer
The California Supreme Court chose the broad definition of “employer,” but in doing so it reined in this definition. Adhering to the state Industrial Welfare Commission’s definition, the court ruled that “employer” (i.e., a person who employs or exercises control over the wages, hours, or working conditions of any person) could include circumstances in which more than one business controls different aspects of the employment relationship. It is not necessarily limited to the business that pays the paychecks. The court determined that the narrower definition in federal law (“economic reality test”) did not apply here.
Even Under Broad Definition, Merchants Not Employers
The Court rejected the workers’ argument that they were employees of the merchants because the merchants “suffered or permitted plaintiffs to work.” Although the merchants had knowledge that the workers were working to perform the farmer’s contractual obligations and their work ultimately benefited the merchants, this was insufficient. The “concept of a benefit is neither a necessary nor a sufficient condition for liability under the ‘suffer or permit’ standard,” wrote the court.
Instead, the basis of liability is the company’s knowledge of and failure to prevent the work from occurring. Here, the merchants did not “suffer or permit” the workers to work because neither had the power to prevent plaintiffs from working. That power was solely in the hands of the farmer.
The Court applied a dose of common sense in rejecting the worker’s broad definition. If the merchants were liable, why not also the grocery store who purchases the produce? Where does it end? “Had the IWC intended to impose a rule capable of creating such potentially endless chains of liability, one would expect the commission to have announced it in the plainest terms after vigorous debate. Yet the concept of downstream benefit as a sufficient basis for liability appears nowhere in the wage order‘s definition of employer.”
Therefore, a “downstream beneficiary” of the worker’s labor is not automatically an employer. The bottom line, according to the Court, is that a business does not become liable for wages of its vendor unless it (a) knows that employees are working in the business without having been formally hired, or while being paid less than the minimum wage, and (b) fails to prevent it, and (c) while having the power to do so.
Practical Tips:
Limit Control. Make sure your company does not control others’ workers. In fact, the vendor contract should state that the vendor is solely responsible for hiring, firing, supervising, scheduling, setting the wages and working conditions of its workers.
Require Compliance. Where labor will be provided, have the other party specify in writing that it will comply with all applicable wage and hour laws.
Indemnity. Require the other party to indemnify the company against employment-related claims by its workers. Note that such a contract clause is of no value if the other party becomes insolvent or files for bankruptcy protection.
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Download entire June 2010 Legal Update in PDF format.
This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2010 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.
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