Friday, May 21, 2010

California Supreme Court Rejects Economic Reality Test in Favor of IWC’s Expansive Definition of “Employer” : Martinez v. Combs

On May 20, 2010, the California Supreme Court issued an important opinion in Martinez v. Combs, __ Cal.4th __ (2010), concluding that the definition of “employer” contained in the IWC's wage orders define the employment relationship, and thus, who may be liable for unpaid wages. Slip Opinion, at 14-15. The decision comes nearly 100 years after the first variation of Labor Code Section 1194 was enacted, and is the first in which the Court has squarely weighed in on the proper definition of “employer” for purposes of unpaid wage liability. Previously, California courts have looked to the federal “economic reality test” – the thrust of which is focused on “control” – to define employer status under California law. See id., at 37-40. However, the Court concluded that the IWC’s definition of “employer” is more expansive than under federal law, as the Wage Orders were amended to broaden the definition of employer status in response to Congress’ passage of the Portal-to-Portal Act in 1947. See id., at 26-28.  As held by the Court, the applicable IWC test provides several potential avenues to employer status, each of which were adopted to address specific policy concerns relating to the protection of employees:
To employ, then, under the IWC‘s definition, has three alternative definitions. It means: (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.
Slip Opinion, at 35.

The Court’s opinion goes on to discuss application of each prong under the facts of the case, which dealt with whether downstream entities from the immediate employer of strawberry field workers were technically employers under California law. Ultimately, the Court concluded they were not. However, in my humble opinion, this decision is nonetheless a substantial one, and likely will place the issue of “employer” status directly in question for a lot of business relationships formed under the more narrow economic realty/control test regime.

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