CAN TWO DIFFERENT COMPANIES BOTH BE LIABLE FOR WAGE LAW VIOLATIONS AS ‘JOINT EMPLOYERS’ OF THE SAME EMPLOYEE?
The traditional employment scenario in which an employee works for (and receives supervision and direction and pay from) one employer seems to be less common as businesses continue to try to lower their costs and limit their liability for wage law violations while coming out of the economic recession. Multiple businesses being involved in the work by the same employee can, however, create the risk of each company being held liable for wage law violations as a “joint employer”. There are two primary scenarios which may involve ‘joint employment’.
Scenario No. 1: Two or more companies with separate owners are involved in overseeing and dictating the work of an employee
Example: A trucking company (TRUCK Co.; which may be a company or an individual) owns the trucks and processes the paychecks for the drivers and helpers who deliver a certain product manufactured and sold by a different company (SELLER Co.). A third company (DELIVERY Co.), which specializes in delivery of products to consumers, is contracted by SELLER Co. to deliver all products sold to the consumer. This DELIVERY Co. contracts with TRUCK Co. to do the actual manual labor of loading products into the trucks, and driving to the consumers’ homes to deliver the products.
In this scenario, only TRUCK Co. is liable for wage law violations involving the drivers and helpers who deliver the products, RIGHT? That answer may be correct IF each of the companies truly operate independently, AND IF neither SELLER Co. nor DELIVERY Co. are involved to any significant degree in controlling, supervising or affecting the work by the drivers and helpers. But if either SELLER Co. or DELIVERY Co. have enough control over the work performed by the drivers and helpers, they can be held liable for wage law violations as joint employers.
The starting point under CA wage law is the definitions of “employer” and “employ”. The Industrial Wage Commission (“IWC”) Orders define “employer” broadly to include “any person . . . who directly or indirectly, employs or exercises control over the wages, hours or working conditions of any person.” See, e.g., 8 CCR § 11040, ¶2(H). The Orders further define “employ” to mean “engage, suffer, or permit to work.” Id., ¶2(E). The recent California Supreme Court decision in the case of Martinez v. Combs, (2010) 49 Cal.4th 35, set forth for the first time the criteria under which a company may be found to be a “joint employer.” The Court concluded that there are actually three separate ways an entity may qualify as a “joint employer”: (a) by exercising control over the wages, hours or working conditions; (b) by suffering or permitting the employee to work; or (c) by engaging the employee, thereby creating a common law employment relationship. Ibid at 64. The Court in Martinez emphasized that the definition of “employ” in California is both broader than the common law definition and different from the federal standard for employment under the Fair Labor Standards Act (“FLSA”). Ibid at 63-68. To satisfy the “suffer or permit” standard, the putative employer must: (1) know that the employee is performing work on its behalf; and (2) have failed to prevent the work and/or the unlawful working condition from occurring, despite the power to do so. Ibid at 69-70.
Published case law since the Martinez decision was issued has helped clarify how these joint employment ‘tests’ are applied to various factual scenarios. In the case of Futrell v. Payday California, Inc., (2010) 190 Cal. App. 4th 1419, the Court applied the three ‘tests’ for joint employment and found that Payday California, Inc. (“Payday”) was not the Plaintiffs’ joint employer because Payday did not “control”, “assign or supervise”, “set the work schedules for”, “provide any tools to” or “receive any benefit from” the Plaintiffs. The Futrell Court found instead that a different company, Reactor Films, Inc. (“Reactor”), was the actual employer, and that Reactor essentially just outsourced its payroll for the Plaintiffs in that case to Payday. So if a company does little more than issue paychecks, they likely are not the employer or a ‘joint employer’ under the law.
Conversely, in Guerrero v. Superior Court, (2013) 213 Cal. App. 4th 912, the Court applied the joint employment tests set forth in the Martinez case and found that Sonoma County and its in-home support division were joint employers of a person providing services to a care recipient – – even though that person was hired by and provided care to the recipient of the services. The County was held liable as a joint employer because it determined the eligibility of the recipient and the home care tasks to be performed by the person providing the services. Guerrero, 213 Cal. App. 4th at 949-951. Similarly in Arredondo v. Delano Farms Company, (E.D. Cal. 2013) 922 F.Supp. 2d 1071, the Court held that a vineyard was a joint employer of the employees of its farm labor contractor – – even though such contractor was a legitimate independent contractor to the vineyard – – because the vineyard could affect the wages paid to the employees of the farm labor contractor since this contractor “appeared to pay its employees directly from the funds it received from [the vineyard]” Arredondo, 922 F. Supp. 2d. at 1088.
Under this legal precedent, the companies in the example described, SELLER Co. and DELIVERY Co., likely qualify as joint employers with TRUCK Co. – – even though TRUCK Co. owns the trucks used for the deliveries and provides the paychecks to the drivers and helpers making the deliveries – – based on the following facts (not provided above). SELLER Co. and DELIVERY Co. are not bystanders to the TRUCK Co. drivers and helpers making the deliveries (as they would be if the products sold were simply delivered to TRUCK Co. to be delivered as TRUCK Co. saw fit), but instead SELLER Co. and DELIVERY Co. provide all the initial employment forms when a new driver or helper is hired, provide required log-books to document the routes taken and miles driven each day, require daily submittal of the log book pages, determine the time the drivers/helpers start work each day, the location they report to each day, the number and specific deliveries to be made by each truck each day, the exact order and routes to be taken for deliveries, and numerous rules the drivers/ helpers must follow each day, including checking in with the SELLER Co./DELIVERY Co. distribution center every three deliveries, answering numerous phone calls from this distribution center throughout the day, following orders to return to customers’ homes to solve problems with products delivered, assembling products delivered following specific training provided by SELLER Co. and DELIVERY Co., and being subject to termination or other discipline by SELLER Co. and DELIVERY Co.. Further, the funds received by TRUCK Co. come solely from the contract with DELIVERY Co., based on the products sold by SELLER Co.. With this level of ‘control’, supervision and direction, SELLER Co. and DELIVERY Co. will likely be found to be ‘joint employers’ of the drivers & helpers and therefore are liable for any wage law violations related to the delivery work performed by these individuals. The fact that they do not issue the paychecks or own the trucks used does not change this ‘joint employer’ status and associated liability.
Scenario No. 2: Two businesses owned by the same person employ an individual to work at BOTH companies
Example: An employer owns an adult day care facility as well as a home for dependent adults. Each company is a separate corporate entity with its own tax ID number, own checking accounts, and own management team. The only thing that ties the two companies together is that they are owned by the same person and provide similar, but not identical services. The owner has employees who work for both companies and sometimes these employees exceed both eight hours worked per day and/or 40 hours worked per week when the hours worked for both the adult day care facility and the home for dependant adults are combined. If, in this scenario, it is the employees’ own choice to work overtime, and the companies are in fact separate entities, is the owner (who owns both companies) still required to pay the employees overtime under either CA wage law or under the federal Fair Labor Standards Act (FLSA)?
The answer is ‘it depends’.
If the two companies are acting entirely independently of each other and are completely disassociated with respect to the employment of a particular employee, then overtime pay on the combined hours will not be owed. Instead, each company is responsible only for the hours worked by the employee for that company. But if instead the two companies are not completely disassociated, they may be held liable as joint employers, as set forth in the 2003 9th Circuit Court of Appeal case of Chao v. A-One Medical Services, Inc. (9th Cir.2003) 346F.3d 908,916-917. See also the regulation at 29 C.F.R. § 791.2(a).
If in this example, the same owner used the exact same forms and criteria to hire employees for the adult day care facility as are used for the home for dependent adults, has the authority to hire and fire employees at both companies, uses and enforces the same HR policies at both companies, and uses similar or identical pay rates for employees at the two companies, then the adult day care facility and the home for dependent adults will likely be found to be joint employers – – and the single owner of both companies will be liable for overtime pay based on the combined hours worked at both companies. The fact that an employee exercised a degree of ‘choice’ in working extra hours above eight hours per day or forty hours per week when the hours worked at both companies are combined is not relevant to the issue of joint employment and the related liability on the single owner. Under both California wage law and the federal FLSA law, it is the employer’s obligation to know when an employee is working and the document the hours worked.
A related question/issue is: can’t the employee waive his or her right to overtime pay if they choose to work for both companies to get additional hours of work, and additional straight-time pay, but do not care about overtime pay? The answer is “no”; under both California wage law and the federal FLSA law the right to overtime pay is a statutory right, and cannot be waived. This is true without exception under the FLSA; under CA wage law the same is true most of the time, but for employees in unions under collective bargaining agreements ‘premium’ pay above straight time pay yet below traditional time and a half overtime pay can be negotiated in specific circumstances.
In sum, under either of these two most common scenarios, the published case law is now in place to allow application of the facts at issue to the now recognized legal ‘tests’ for joint employment, to determine if multiple companies are in fact separate employers, liable only for their own employees, or are “joint employers”, liable for any of the wage law violations found.