How to Make Sure Your Vendor’s Employees Don’t Become Yours

Many employers choose to “outsource” a portion of their labor force to vendors, contractors, or staffing agencies. Vendor employees can include janitors, technicians, data entry clerks, and all manner of temporary workers.

If your company contracts with vendors to provide any workers for your business, do not simply assume you have no responsibility for these workers’ wages and hours under the California Labor Code.  Depending on the relationship between you and the vendor’s workers, you could be liable as a “joint employer” in a wage and hour lawsuit. For that reason, you should ensure that you know the law and that your agreement with the vendor clearly spells out each party’s roles and responsibilities.

How can a business be a “joint employer” of a vendor’s workers?

California law expressly holds companies of a certain size jointly liable for the wage and hour violations of its vendors. California Labor Code 2810.3 makes a “client employer,” –  that is, a for-profit business with more than 25 employees which hires more than 5 non-exempt workers through a vendor – jointly responsible for ensuring the vendor pays wages and provides workers’ compensation insurance according to law.  Section 2810.3(b).

Further, employers cannot contract away this responsibility.  Section 2810.3(c). So including a provision in your agreement that the vendor’s employees are the vendor’s alone, for example, would not circumvent section 2810.3.  Such “client employers” must also provide documents proving compliance with California law upon request by state government agencies. (Section 2810.3(i).)

In June 2018, the California Labor Commissioner issued $4.5 million in damages and penalties against the Cheesecake Factory Restaurants, Inc., for wage and hour violations that affected 559 janitors at eight restaurants in Orange and San Diego Counties.  Cheesecake Factory’s vendor, Americlean Janitorial Services Corp., had subcontracted janitorial services at those stores through another company, Magic Touch Commercial Cleaning. The Commissioner found that the janitors worked 8-hour overnight shifts without breaks, and were also required to remain after their shifts until employees inspected and approved their work in the morning, for which they were not paid overtime. The Labor Commissioner found that the Cheesecake Factory was jointly liable for these damages and penalties with the contractor and subcontractor.

Section 2810.3 has a number of exceptions. Small employers (those with fewer than 25 employees or 5 vendor employees) are exempt, as are nonprofits and government agencies.

However, even if your business falls within one of the statutory exceptions, you might still be a “joint employer” of your vendor’s employees, depending on your role in hiring, firing, and supervising them.

The leading case in California on joint employer relationships is Martinez v. Combs, 49 Cal. 4th 35 (2010). In that case, a company called Munoz & Sons employed seasonal agricultural workers. They sued Munoz for wage and hour violations, and they also sued the four produce merchants who bought the strawberries Munoz’s workers grew.  Plaintiffs argued that because the merchants inspected the strawberries in the fields while the employees were working, the merchants exercised control over the work and were thus joint employers.

The California Supreme Court first explained that, “[u]nder Wage Order No. 14 ‘Employ‘ means to engage, suffer, or permit to work, and ‘[e]mployer‘ means any person as defined in Section 18 of the Labor Code, who directly or indirectly, or through an agent or any other person,employs or exercises control over the wages, hours, or working conditions of any person.” (Cal. Code Regs., tit. 8, § 11140, subd. 2(C), (F).) Martinez, 49 Cal. 4th at 57-59.  Although “suffer or permit” to work was a century-old phrase, the Court found it was still relevant today.  The Court explained, “A proprietor who knows that persons are working in his or her business without having been formally hired, or while being paid less than the minimum wage, clearly suffers or permits that work by failing to prevent it, despite having the power to do so.” Id.

The Court in Martinez found that the merchants were not joint employers of the workers, because only Munoz had the power to hire and fire the workers, to set their hours and rates of pay, and to tell them where and when to come to work.  Munoz – not the merchants – set the workers’ schedule for harvesting the fields.  The merchants did not “suffer or permit” the workers to work, because they had no power to fire them. The merchants also had no say in their wages, hours, or working conditions. Id. at 70-72.

Another case, Ochoa v. McDonalds Corp., 133 F. Supp. 3d 1228 (N.D. Cal. 2015) extended joint employer liability to McDonald’s for wage and hour violations against its franchisees’ employees. In doing so, the court found that any one aspect of control – that is, control over wages, hours, or working conditions – could lead to a finding of joint employer liability.

How Can I Protect Against Wage & Hour Suits By Vendor Employees?

If you are a larger employer with at least 25 employees and at least 5 vendor employees, you are probably legally responsible for the vendor’s wage and hour compliance. You should ensure that your company’s vendor agreement spells out, in detail, the vendor’s duties to comply with California and federal wage and hour laws.  It should include the vendor’s agreement to pay overtime as required, to provide meal and rest breaks per the Labor Code, and to provide compliant wage statements. You may also want to include a mechanism to audit the vendor’s compliance, including by reviewing sample wage statements and time records.

Regardless of your size, your company should not get involved in decisions about hiring, firing, promotions, raises, or work schedules for the vendor’s employees.  These acts could be viewed as you “suffering or permitting” the vendor’s employees to work, or as you controlling the their working conditions.  You should provide your employees with written policies regarding the vendor’s employees, so they know not to give those workers directions or instructions, and so they know not to tell them when to report to work, when to take breaks, or when to leave.  Otherwise, your employees may not realize that the people who work alongside them do not work directly for you.

If you have questions or would like assistance crafting an agreement that is right for your company, please contact us – our expert employment attorneys can help.

DISCLAIMER: Content within this post should not be considered legal advice and is for informational purposes only. Communications made through this post do not create an attorney-client relationship. Hackler Flynn & Associates is not responsible for any content that you may access from third-party resources that may be accessed through or linked to this post.

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