It’s Berry Hard to Believe, But Growers and Marketers May Not Be Jointly Liable for Laborers’ Wages, Even in California
On June 1, 2023, the Ninth Circuit Court of Appeals in Morales-Garcia v. Better Produce, Inc., No. 22-55119 (9th Cir. June 1, 2023) affirmed the Central District of California’s ruling in favor of two strawberry marketers holding that the marketers were not “client employers” liable for laborers’ unpaid wages despite the fact that the farmworkers were working on the marketers’ farmlands, which were subleased to the growers.
Plaintiffs and Appellants were farmworkers who harvested strawberries in 2016 and 2017 in Santa Barbara County, California. Appellants were hired by three farms that grew the strawberries: Higuera Farms, Inc., Big F Company, Inc., and La Cuesta Farming Company, Inc. (“the Growers”). The marketers of the strawberries, Better Produce, Inc. and Red Blossom Sales, Inc. (“Marketers”), held master leases to the farmlands and subleased them to the Growers under yearly marketing and sublease agreements, which specified that the land would be used only to grow strawberries and that the Marketers retained the exclusive right to sell the strawberries to their retail customers. This sublease became one of the key issues in the court’s analysis.
Under the marketing and sublease agreements, the Growers were responsible for the farming operations: the growing, harvesting and packing of the fruit, and the supervising and control of the workers. The Marketers provided the packaging materials, communicated about the quality of the fruit, cooled and sold the fruit. Better Produce also provided cash advances directly to the Growers to cover worker payroll and other operating expenses. These advances were deducted from the sales proceeds along with the Marketers’ commission fees, cooling fees, and packaging material costs, before the Marketers remitted net sales proceeds to the Growers.
The Marketers retained the limited right to enter the land to conduct inspections of the strawberries. These inspections were required by the Marketers’ retail customers, who required random food safety audits. In addition, the Marketers retained the right to enter the lands if the Growers filed for insolvency, stopped growing the crop, or failed to follow “customary practices” for growing the strawberries.
In 2018, the Growers failed to pay the workers and the workers filed a class action lawsuit in the United States District Court for the Central District of California against the Growers and Marketers alleging wage and hour violations under federal and California laws and as client employers under California Labor Code section 2810.3. The Growers filed for bankruptcy and the parties agreed to bifurcate the trial, allowing the Marketers’ liability to be determined first in a bench trial. Judgment was ultimately entered in favor of the Marketers. Morales-Garcia v. Higuera Farms, Inc., No. 2:18-cv-05118, 2021 WL 6774327, at *45 (C.D. Cal. Oct. 15, 2021).
The district court issued a comprehensive opinion analyzing both federal and California laws, finding that the Marketers were not joint employers under the Migrant and Seasonal Agricultural Worker Protection Act (“AWPA”), 29 U.S.C. § 1801-1872 or California law.
The district court analyzed the AWPA claim under the “economic reality” test —whether workers are so economically dependent upon the agricultural employer/association as to be considered employees. 29 C.F.R. § 500.20(h)(5)(iii). The district court concluded that Plaintiffs were not economically dependent on the Marketers. The Marketers did not have the power to “direct, control, or supervise the worker(s) or the work performed,” as required by 29 C.F.R. § 500.20(h)(5)(iv)(A) because they did not supervise the workers in planting, cultivating, harvesting, or packing the strawberries, nor did they control decisions related to Plaintiffs’ work assignments.
With respect to the Plaintiffs’ joint employer claim under California law, the district court turned to the seminal and similar case, Martinez v. Combs, 231 P.3d 259 (Cal. 2010). In Martinez, the California Supreme Court held that the merchants who sold the berries were not joint employers of the workers because the merchants did not supervise or control the work; the grower had the “exclusive power to hire and fire his workers, to set their wages and hours, and to tell them when and where to work.” Id. at 282. Here, the district court similarly concluded that the Marketers were not joint employers under California law because they did not exercise control over Plaintiffs’ wages, hours, or working conditions.
Finally, the district court tackled Plaintiffs’ claims that the Marketers were client employers under Labor Code § 2810.3. Under the statute, an outsourcing entity, known as a “client employer,” is liable for laborers’ wages if the laborers’ work is within the outsourcers’ “usual course of business.” The court focused on the definition of “usual course of business,” that requires the work performed by Plaintiffs to be the “regular and customary work” of the Marketers and to take place on the Marketers’ “premises or worksite.” Cal. Labor Code § 2810.3(a)(6).
The district court rejected Plaintiffs’ argument that the workers’ harvesting the strawberries was the “regular and customary work” of the Marketers because the berries had to picked in order for the Marketers to ultimately conduct their consignment sales. The court viewed that theory to be too far reaching in that it could create an unintended downstream liability to even supermarket retailers.
The court consequently examined whether the laborers’ work was done on the “premises or worksite” of the Marketers and the degree of control the Marketers’ exercised over the farmlands. The court found that the Growers had sole control over managing the workers and cultivating the farms, and that the limited control or reservation of rights the Marketers exercised over the farms was “consistent with the relationship between a sublessor and sublessee.”
The issue on appeal was limited to the district court’s ruling related to California Labor Code § 2810.3, to determine whether the Marketers were liable as client employers.
Plaintiffs’ primary assertion was that the district court erred when applying any control test over workers when the issue hinged on interpreting the statutory requirement that the work take place on the client employer’s premises or worksite. Plaintiffs correctly called out that the word “control” is not in California Labor Code § 2810.3, but that a control test was appropriately used by the California Supreme Court in Martinez, 231 P.3d at 283-87. Under the terms of the sublease and in practice, the Marketers did not possess the farmlands. The district court correctly asked whether the Marketers nonetheless exercised sufficient control over the farmlands so as to make the lands their “premises.” In short, while Martinez and federal authorities were concerned about control of the workers, the district court for purposes of § 2810.3 was concerned about control of the land.
Plaintiffs further asserted that the Marketers relied on the subleases to “create a legal fiction of independence” to limit their liability for the workers who harvested the strawberries. However, under the marketing and sublease agreements, although the Marketers held the master leases to the farmlands, they did not have the right to exercise control over the farmlands, or to direct the harvesting work performed on the farms. The Growers had the sole authority to control the farming of the strawberries and to direct Plaintiffs’ work performances. Such restrictions did not constitute evidence of control that would render the farms the premises of the Marketers. Thus, the Marketers were not liable as client employers for the workers’ unpaid wages.
California marketers should make sure that their contracts and practices establish no exercise or control over the farmworkers and the farmlands to avoid the risk of joint-employer or client employer liability for wage and hour violations. California growers should always comply with all wage and hour laws for the payment of wages to their workers.
© 2023 – Fennemore, LLP All rights reserved. The information in this article has been prepared by Fennemore, LLP for informational purposes only and does not constitute legal advice.
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