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Martinez v. Combs

May 20, 2010


San Luis Obispo County Super. Ct. No. CV001029 Ct.App. 2/6 B161773.

The opinion of the court was delivered by: Werdegar, J.

Plaintiffs, seasonal agricultural workers, brought this action under Labor Code section 1194*fn1 and other theories to recover unpaid minimum wages. Plaintiffs contend the Industrial Welfare Commission's (IWC) wage order No. 14-2001, entitled "Order Regulating Wages, Hours, and Working Conditions in the Agricultural Occupations" (Cal. Code Regs., tit. 8, § 11140), commonly known as Wage Order No. 14, defines defendants as their employers for purposes of section 1194. The lower courts rejected the argument. We affirm.

I. Background

This case arises out of the strawberry farming operations of Isidro Munoz, Sr., who did business as Munoz & Sons (Munoz). Plaintiffs are seasonal agricultural workers whom Munoz employed during the 2000 strawberry season: Antonio Perez Cortes, Catarino Cortez, Otilio Cortez, Asuncion Cruz, Hilda Martinez and Miguel Martinez. Munoz, originally named as a defendant, has been granted a discharge in bankruptcy. The remaining defendants are two of the produce merchants through whom Munoz sold strawberries: Apio, Inc. (Apio), and Combs Distribution Co., together with its principals, Corky and Larry Combs, and its field representative Juan Ruiz (collectively Combs). Plaintiffs' separate action against a third merchant, Frozsun, Inc. (Frozsun), has been stayed pending the outcome of this action. A fourth merchant, Ramirez Brothers, has petitioned for bankruptcy.

During the 2000 season, Munoz grew and harvested strawberries in the Santa Maria Valley, which lies on the Central Coast along the border of San Luis Obispo and Santa Barbara Counties. Munoz farmed a total of 130 acres divided among four sites. He leased two 30-acre sites (the "Oceano" and "Zenon" fields) from defendant Apio and a 40-acre site (the "El Campo" field) from an unidentified third party.*fn2 Munoz had leased the Oceano and El Campo fields in prior years. He rented an additional 30-acre site (the "Santa Maria" field) from Ramirez Brothers. Munoz operated his business as a single, integrated concern, using his employees and equipment in all four fields, as needed, and combining his revenues and expenses. During the peak of the harvest, Munoz employed approximately 180 agricultural workers, three foremen (including his brother, Armando Munoz) and two office workers (including his son, Isidro Munoz, Jr.). Munoz owned his equipment, including trucks, tools and strawberry carts, and paid his own business expenses, including plants, fertilizer, pesticide, irrigation, fuel, packaging, and rent for additional trucks, a large tractor and field toilets. On the occasions when Apio and Combs paid Munoz's expenses in the first instance, they billed him. Both defendants, for example, charged Munoz for packaging that bore their companies' labels, and for refrigeration, and Apio charged Munoz for his portion of the cost of a shared irrigation system.

Munoz grew and harvested strawberries for two distinct markets: fresh sale to consumers in markets, and sale for processing (typically freezing). Fresh market and freezer berries are harvested differently. Fresh market berries cannot be too green or too ripe, and the calyx (sepals and stem) is left attached. Market berries are packed in the field, as they are picked, into the containers in which they will be sold to consumers, such as plastic baskets or clamshell boxes. Freezer berries, in contrast, are selected for advanced ripeness and packed in bulk into crates with the calyx removed. Munoz harvested strawberries for both markets from the same fields. He decided which fields to harvest on any given day, and whether to harvest for fresh market sale or the freezer, based largely on the need to pick fields every three days, informing the merchants of his schedule and taking into account their orders and the berries' condition.

The four produce merchants through which Munoz sold strawberries are not related to one another. Munoz had dealt profitably with defendant Apio for three years prior to 2000, and with defendant Combs for one. The principals of Ramirez Brothers were Munoz's personal friends. Apio, Combs and Ramirez Brothers dealt only in fresh market berries, and Frozsun dealt only in freezer berries. Apio, Combs and Frozsun each accepted berries from many independent growers, not just Munoz. Combs also sold beans for Munoz after the strawberry season ended.

Munoz had different contractual relationships with each merchant. Apio and Combs acted as produce brokers, selling Munoz's strawberries for a commission and remitting to him the net proceeds.*fn3 Munoz retained title until sale. Both defendants, following a common practice of produce merchants on the Central Coast, advanced money to Munoz before the season began, in exchange for exclusive rights to fresh produce from designated fields. These advances were retired over the season from sales revenues. Apio and Combs handled payment differently. Combs agreed to remit the actual net proceeds of sale to Munoz within 21 days, in weekly payments, minus a deduction for loan repayment (30 percent), expenses such as packaging materials and cooling, and an 8 percent commission. Apio operated similarly and charged the same commission but, rather than making weekly payments to Munoz of actual net proceeds, paid him estimated net proceeds in the form of a weekly "Pick-Pack" payment that was initially set at $2.00 per carton but actually varied with the price of strawberries. Frozsun, which purchased strawberries exclusively for processing, paid Munoz on delivery the official "field price" posted by the Processing Strawberry Advisory Board of California. Munoz and Ramirez Brothers, being personal friends, conducted business without a written contract. Their understanding was that Munoz would pay for plants and labor and Ramirez Brothers would pay all other expenses, remitting net profits to Munoz after recovering their costs.

Munoz's financial resources for the 2000 season came from many sources. Much of his cash during the season came from sales proceeds, including at least $378,392 in Pick-Pack payments (estimated net proceeds) from Apio, $476,955 in net proceeds from Frozsun, and an unspecified amount from Combs. Munoz also invested at least $500,000 of his own funds and an unspecified amount of loan proceeds. The record does not identify all of Munoz's financing sources. Some financing, as noted, came from the produce merchants. Apio advanced Munoz $163,000, or $2,716 per acre for the Oceano and Zenon fields, and Combs advanced $80,000, or $2,000 per acre for El Campo. These advances were not intended to cover Munoz's actual costs for growing and harvesting strawberries, which were far higher.*fn4 The vice-president of Apio described that company's advances as covering rent for the Oceano and Zenon fields. Frozsun agreed to make or facilitate a loan of up to $225,000 in exchange for the exclusive right to purchase freezer and cannery berries from all of Munoz's acreage. Munoz also received loans from personal friends and financing for equipment from Ford Motor Company and John Deere.

Munoz alone, with the assistance of his foremen, hired and fired his employees, trained them when necessary, told them when and where to report to work, when to start, stop and take breaks, provided their tools and equipment,*fn5 set their wages, paid them, handled their payroll and taxes, and purchased their workers' compensation insurance.*fn6

Munoz and his foremen also supervised his employees. Plaintiffs contend defendants Apio and Combs participated in the supervision, characterizing as supervision the activities of defendants' field representatives in the areas of quality control and contract compliance. We will return to this subject below. (See post, at p. 51 et seq.) Summarizing for present purposes, picking and packing strawberries for fresh market sale necessitated communication in the field, during the harvest, between defendants and Munoz's personnel. Both Apio and Combs regularly sent field representatives to ascertain the quality of available strawberries and to explain the manner in which they were to be packed. Apio sent their representatives Juan Toche and Manuel Cardenas. Combs sent defendant Juan Ruiz, who performed similar services for many entities and whom Combs eventually hired as an employee in June 2000. Munoz's contract with Apio expressly provided for these quality control activities. The contract provided, under the headings "Performance Oversight and Coordination" and "Quality of Crops," that Apio would "set the standards for, and be the sole judge, of the quality and maturity of the Crops and the pack," and that Apio would "have the right to send its quality control personnel to the fields . . . at any time to confirm that the Crops . . . are the quality required for purchase by [Apio] and/or marketing and sale under [Apio's] labels . . . ." Munoz operated the same way with Combs, apparently as a matter of standard practice, even though the parties' terse, single-page contract did not address the subject.

Munoz began delivering fresh market strawberries to Apio and Combs sometime in March 2000. He delivered the last fresh berries to Apio on May 16, 2000, and to Combs on May 18, 2000. The freezer berry harvest began at the end of April and thus overlapped the last few weeks of the fresh berry harvest. When the fresh berry harvest ended, the freezer berry harvest greatly increased. To illustrate, as of May 20 Munoz had sold to Frozsun a total of 175,400 pounds of freezer berries for $31,663. In the next week alone (ending May 27), Munoz sold 787,208 pounds for $149,340. Sales to Frozsun continued until August 12, eventually totaling 2,608,781 pounds and $476,955 in payments to Munoz.

In the last few weeks of the fresh strawberry harvest, the market for fresh berries deteriorated. According to Munoz, more berries were grown and harvested in 2000 than the market could handle. Apio, Combs and Ramirez Brothers were receiving poor prices for berries and, in some cases, no price at all when customers took berries on consignment. Apio's Pick-Pack payments of estimated net proceeds, initially set at $2.00 per carton, reached a high of $2.50 per carton from mid-March to April 23 and then dropped gradually to $1.33 in May as the price of strawberries fell. Apio paid Munoz $68,791 on May 12 for berries delivered the week ending May 7, in advance of the 21-day contractual due date for payment. The next Pick-Pack advance payments from Apio were due on June 2 for the week ending May 14, and on June 9 for the week ending May 21. Apio actually advanced Munoz $77,662 for both weeks sometime between June 8 and 10. Combs advanced Munoz $30,000 in the last five days of May. Munoz received no payments at all from Ramirez Brothers during the 2000 season. Munoz finished the season owing Apio about $80,000, Combs about $8,000, and Ramirez Brothers about $30,000.

Despite advances from Apio and Combs, and despite increasing payments from Frozsun, Munoz at some point in May 2000 began to have problems paying his workers. This led to a work stoppage on the afternoon of Saturday, May 27, in the El Campo field, where over 100 of Munoz's employees were harvesting freezer berries. Munoz's employees, who had apparently not been paid for several weeks, had stopped work and were talking with Jose Popoca Serrano, who identified himself as a member of the "Organization for Human Rights." Serrano was compiling a list, which he later gave to the Department of Labor Standards Enforcement (DLSE), of workers claiming unpaid wages. Munoz's supervisor Arturo Leon, and Munoz himself by telephone, asked Serrano to help persuade the workers to return to work, telling Serrano that Munoz could not pay because Apio was withholding payment.*fn7 Munoz promised Serrano he would pay his workers on Tuesday. At some point, Combs's field representative Juan Ruiz arrived, telling Serrano he had a check to Munoz from Combs for $25,000 and that Munoz already had another $20,000. Ruiz then spoke directly to Munoz's workers. According to plaintiff Asuncion Cruz, "Juan [Ruiz] . . . told us to keep working and help Munoz. Juan told us not to worry and said he guaranteed we would be paid as his boss had checks he was delivering to Isidro Munoz." Cruz "heard workers tell Juan they were concerned that the amount of the check he brought with him would not be enough to pay everyone. Juan told us not to worry as he would deliver even larger amounts of money from his boss to Isidro Munoz the following week, and even more money the week after that, which would be enough to pay us all." Munoz's workers recognized Ruiz as the field representative for the company (Combs) to whom Munoz delivered fresh market berries from the El Campo field. According to Leon, Ruiz also spoke with individual workers, explaining that "if all of you stop right now, the strawberries are going to go to waste. And they won't be able to pay you." After Ruiz spoke, several workers crossed their names off Serrano's list and returned to work, but 75 workers left for the day to return on Monday.

On June 5, 2000, the DLSE began to investigate wage claims against Munoz, based on Serrano's information. The next day, DLSE investigator Paul Rodriguez met with Tim Murphy, Apio's vice-president, who said that a payment to Munoz of approximately $75,000 was pending. Rodriguez asked Murphy not to pay Munoz but, instead, to pay Munoz's employees directly. Murphy declined because Apio owed the money to Munoz, not his employees, and did not want to breach its agreement with Munoz. Subsequently, however, Apio and Munoz agreed, at the DSLE's suggestion, that Apio would pay Munoz, and that cashier's checks would immediately be issued in the names of the employees who had filed wage claims. Implementing this agreement on June 8 or 9, Murphy and Munoz visited Mid-State Bank & Trust in Guadalupe, where Murphy did business. Munoz endorsed Apio's check to the bank, and the bank issued checks to the workers named on a list Munoz provided. On June 10, Murphy delivered the checks to DLSE investigator Rodriguez at the Betteravia Government Center in Santa Maria. Rodriguez, a second DLSE investigator, and Munoz's foreman Arturo Leon distributed the checks to Munoz's employees. Murphy observed the distribution but did not participate.

On November 21, 2000, plaintiffs filed the present action against defendants Apio, Combs and Ruiz, as well as the now-bankrupt Munoz. Plaintiffs asserted a variety of claims. Specifically, plaintiffs alleged defendants were liable for unpaid minimum wages (§ 1194), liquidated damages for unpaid minimum wages (§ 1194.2),*fn8 unpaid contract wages (§ 216), waiting time penalties (§ 203), penalties for failure to provide wage statements (§ 226), and breach of contract. On behalf of similarly situated employees, plaintiffs also alleged claims under the unfair competition law (Bus. & Prof. Code, § 17200 et seq.) (UCL) for restitution (id., § 17203) and liquidated damages (Lab. Code, § 1194.2). Plaintiffs did not seek class certification.

Defendants Apio, Combs and Ruiz moved for summary judgment on all claims. Plaintiffs' opposition to the motions focused on three theories of liability. First, applying the definitions of "employ" and "employer" set out in Wage Order No. 14,*fn9 plaintiffs contended defendants Apio and Combs, together with Munoz, jointly employed plaintiffs and were thus liable under sections 1194 and 1194.2 for their unpaid wages and liquidated damages. Second, plaintiffs argued they were third-party beneficiaries of the contract between Munoz and Apio, in which, among other things, Munoz agreed to comply with all applicable laws, including the labor laws. Third, plaintiffs asserted they were parties to an oral employment agreement with Combs.*fn10 The superior court rejected plaintiffs' arguments and granted judgment for defendants.

Plaintiffs appealed. The Court of Appeal affirmed in part and reversed in part. Finding no California case law interpreting the IWC's definitions of "employ" and "employer" (e.g., Wage Order No. 14, Cal. Code Regs., tit. 8, § 11140, subd. 2(C), (F)), the court imported the "economic reality" test for employment developed in federal cases interpreting the Fair Labor Standards Act of 1938. (29 U.S.C. § 201 et seq.; see Goldberg v. Whitaker House Coop. (1961) 366 U.S. 28, 33.) Applying that test, the court concluded defendants "did not exercise sufficient control over [plaintiffs,] and [over Munoz's] agricultural operation[,] to be [plaintiffs'] joint employers," and thus affirmed the summary judgment for defendants on plaintiffs' claims under Labor Code sections 1194 and 1194.2. The court also affirmed the summary judgment for Apio on plaintiffs' claim as purported third-party beneficiaries of Apio's contract with Munoz. Finally, the court found triable issues of fact on plaintiffs' claim regarding the alleged oral agreement with Combs. The Court of Appeal reversed the judgment on this claim alone, and Combs did not seek review. In all other respects, the Court of Appeal affirmed.

We granted plaintiffs' petition for review and deferred further action pending consideration of a related issue in Reynolds v. Bement (2005) 36 Cal.4th 1075 (Reynolds).

II. Discussion

A. Introduction

The central question before us is whether defendants are subject to suit by plaintiffs under section 1194.*fn11 The statute provides in relevant part as follows: "Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney's fees, and costs of suit." (Id., subd. (a).) The Legislature has thus given an employee a cause of action for unpaid minimum wages without specifying who is liable. That only an employer can be liable, however, seems logically inevitable as no generally applicable rule of law imposes on anyone other than an employer a duty to pay wages.

Plaintiffs' effort to recover unpaid wages from persons who contracted with their ostensible employer raises issues that have long avoided the attention of California's courts. The statute currently designated as section 1194, with its specific operative language, was enacted in 1913 as part of the act that created the IWC and delegated to it the power to fix minimum wages, maximum hours of work, and standard conditions of labor. (Stats. 1913, ch. 324, § 13, p. 637.) In the ensuing 97 years, however, we have touched only once upon the question of how employment should be defined in actions brought under section 1194. (Reynolds, supra, 36 Cal.4th 1075, 1085-1089.)*fn12 Similarly, the phrases the IWC presently uses to define the terms "employ" and "employer" in all 16 of its current industry and occupation wage orders (IWC wage orders Nos. 1-2001 to 16-2001, Cal. Code Regs., tit. 8, §§ 11010-11160) first appeared in orders dated 1916*fn13 and 1947,*fn14 respectively, yet the courts of this state have never considered their meaning or scope.*fn15 Likewise has the concept of joint employment avoided judicial scrutiny in the context of wage claims brought under state law. Although we have recognized that a person, by exercising significant control over the employees of another, may come to share the employer's legal obligations, our decisions on this point have concerned statutory schemes other than the wage laws.*fn16

How then do we define the employment relationship, and thus identify the persons who may be liable as employers, in actions under section 1194? The question is ultimately one of legislative intent, as "[o]ur fundamental task in construing a statute is to ascertain the intent of the lawmakers so as to effectuate the purpose of the statute." (Day v. City of Fontina (2001) 25 Cal.4th 268, 272.) In this search for what the Legislature meant, "[t]he statutory language itself is the most reliable indicator, so we start with the statute's words, assigning them their usual and ordinary meanings, and construing them in context. If the words themselves are not ambiguous, we presume the Legislature meant what it said, and the statute's plain meaning governs. On the other hand, if the language allows more than one reasonable construction, we may look to such aids as the legislative history of the measure and maxims of statutory construction. In cases of uncertain meaning, we may also consider the consequences of a particular interpretation, including its impact on public policy." (Wells v. One2One Learning Foundation (2006) 39 Cal.4th 1164, 1190.)

B. The Parties' Arguments

The uncertainty surrounding the definition of the employment relationship in actions under section 1194 has led the parties to offer several diverse arguments. Those arguments, and our conclusions, may be summarized as follows:

Plaintiffs contend the language and history of section 1194 show the Legislature intended generally to defer to the IWC's regulatory definitions of the employment relationship in its wage orders. Plaintiffs would give those definitions sweeping breadth. Specifically, plaintiffs argue defendants "suffer[ed], or permit[ted plaintiffs] to work" (Wage Order No. 14, Cal. Code Regs., tit. 8, § 11140, subd. 2(C)), because defendants knew Munoz would need to hire workers to fulfill his contracts with defendants, and that defendants thus, in some sense, suffered or permitted plaintiffs to work for their benefit. Plaintiffs further argue defendants "exercise[d] control over [plaintiffs'] wages, hours, or working conditions" (Wage Order No. 14, Cal. Code Regs., tit. 8, § 11140, subd. 2(F)), because defendants, under the terms of their contracts with Munoz, controlled the remittance to him of his share of the proceeds of sale, and thus a portion of the income from which he paid his employees.

Defendants, in opposition, cite our decision in Reynolds, supra, 36 Cal.4th 1075, where we looked to the common law to define employment in a suit under section 1194 seeking to hold the directors and officers of a corporation liable for its employees' unpaid overtime compensation. (Reynolds, at pp. 1086-1087.) Alternatively, in the event Reynolds is distinguishable and the wage order's definitions do apply, defendants argue we should construe the wage order as if it incorporated the federal "economic reality" definition of employment developed in cases arising under the Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq. (FLSA); see Goldberg v. Whitaker House Coop., supra, 366 U.S. 28, 33) and articulated in federal regulations promulgated under the FLSA; see 29 C.F.R. § 791.2) and the Migrant and Seasonal Agricultural Worker Protection Act (29 U.S.C. § 1801 et seq.; 29 C.F.R. § 500.20(h)(5) (2009)).*fn17

We hold as follows: In actions under section 1194 to recover unpaid minimum wages, the IWC's wage orders do generally define the employment relationship, and thus who may be liable. An examination of the wage orders' language, history and place in the context of California wage law, moreover, makes clear that those orders do not incorporate the federal definition of employment. Applying these conclusions to the facts of the case, we affirm the Court of Appeal's judgment.

C. Labor Code Section 1194

As noted at the outset, the Legislature has not, within the four corners of section 1194, either defined the employment relationship or identified the persons who are liable under the statute for unpaid wages. We thus turn for guidance to the statute's context and legislative history. Section 1194 is the direct successor of, and its operative language comes immediately from, section 13 of the uncodified 1913 act (Stats. 1913, ch. 324, § 13, p. 637) that created the IWC and delegated to it the power to fix minimum wages, maximum hours and standard conditions of labor for workers in California.*fn18 An examination of section 1194 in its statutory and historical context shows unmistakably that the Legislature intended the IWC's wage orders to define the employment relationship in actions under the statute.

The act creating the IWC (the 1913 act) joined a wave of minimum wage legislation that swept the nation in the second decade of the 20th century. No state's law provided for a minimum wage before 1912. By the end of 1913, however, nine states had enacted such laws, motivated by widespread public recognition of the low wages, long hours, and poor working conditions under which women and children often labored. By 1919, another five states, the District of Columbia and Puerto Rico had followed. (Brandeis, Labor Legislation: Minimum Wage Legislation in (1935) 3 History of Labor in the United States 1896-1932 (Commons edit. 1935) pp. 501, 507 (Brandeis).) These states took a variety of approaches to the problem. For example, two states (Massachusetts and Nebraska) enacted voluntary minimum wage laws, and one state (Utah) set a minimum wage by statute. Other states, including California, went much further by directing commissions to study labor conditions and to set minimum wages based on the cost of living, and by making the ...

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