12.20.2010
Court of Appeal Reiterates That Non-Employers Are Not Liable For Wages

In Futrell v. Payday California, Inc., et al., a class action case involving overtime claims against a payroll company that prepared and issued plaintiff’s paychecks, W-2’s and related documents, the California Court of Appeal affirmed the trial court's grant of summary judgment dismissing the plaintiff’s action against the payroll company on grounds that the payroll company was not the plaintiff’s “employer.”

John Futrell provided security and crowd control services for Reactor Films, Inc., a company that produces television commercials. In 2006, Futrell brought a class action lawsuit against Reactor Films and Payday California (“Payday”), the payroll company that provided payroll processing for Reactor Films, alleging he worked overtime on several different projects for Reactor and was not compensated at the proper rate. Specifically, he alleged he was paid one and one-half times his regular rate of pay for hours worked in excess of eight hours in a workday but should have been paid double his regular rate of pay for all of those hours in excess of twelve hours in a workday and was therefore owed $126.00.  Futrell claimed he was an employee of Payday because it acted as a joint employer with Reactor Films during the course of several television commercial productions, and his pay stubs, W2 certificates, and paychecks identified Payday as his “employer.”

The trial court issued its ruling that Futrell was not “employed” by Payday before the California Supreme Court decided Martinez v. Combs (2010) 49 Cal. 4th 35, previously discussed here, which sets forth three alternative definitions of employment to determine whether an employer-employee relationship exists. The Court of Appeal affirmed the trial court’s ruling in light of the Martinez case, finding that Payday was not Futrell’s employer for purposes of sections 203, 226, 510, and 1194 of the Labor Code, or for purposes of the Fair Labor Standards Act ("FLSA").

The Court of Appeal found that the three part test required by Martinez to determine whether an employer-employee relationship exists was not satisfied: 1) Payday did not exercise control over Futrell’s hours or working conditions by issuing paychecks and calculating pay and tax withholding; 2) Payday did not suffer or permit Futrell to work because there was no evidence showing Payday had the power to either cause Futrell to work or prevent him from working; and 3) under the common law test of employment, which considers whether the alleged employer “controlled the details” of the employee’s activities, Payday did not control the details of Futrell’s activities, as Payday did not direct or supervise Futrell at the production sites, Payday did not provide any tools, or the place of work, to Futrell, Payday did not set Futrell’s pay, and the crowd and traffic control services performed by Futrell were not for Payday’s benefit, nor are such jobs an integral part of payday’s regular business operations.

The Court of Appeal also found that under the FLSA’s “economic reality test” which determines whether persons are employer and employee for purposes of the FLSA, Payday prepared paychecks for Futrell for the work he performed on behalf of his actual employer, Reactor Films.

Finally, the Court of Appeal affirmed that it follows the California Supreme Court’s ruling in Reynolds v. Bement that agents or corporate officers of an employer are not personally liable in an action for unpaid overtime under Labor Code section 1194. 

This decision is important because it reiterates that persons and entities other than a person's "employer," such as corporate officers and directors, supervisors, parent corporations, franchisors, and affiliated entities, ordinarily are not liable for alleged failures to comply with various wage and hour provisions of the Labor Code or with Industrial Welfare Commission Wage Orders.

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