California ‘Client Employer’ Wage Law Set for Ninth Circuit Test

Strawberry producers and farmworkers who harvested fruit for tenant farmers that subleased land will argue before the Ninth Circuit that the deeper-pocketed producers should be held liable as “client employers” for alleged wage-and-hour violations.

The workers say that Better Produce Inc. and Red Blossom Sales Inc., who didn’t employ them directly, are client employers under a California law and should be liable for unpaid wages and premium pay for missed breaks. Their dispute, set for argument Friday before the US Court of Appeals for the Ninth Circuit, could clarify state wage-and-hour liability across industries and has drawn outside support for both sides.

Better Produce and Red Blossom subleased Santa Barbara County farmland to three tenant farmers—all of whom filed for bankruptcy during the lower court proceedings—who in turn hired workers to pick strawberries, which the company supplied to large retail customers such as Walmart and Costco.

The farmworkers sought to recover unpaid wages from the deeper-pocketed Better Produce and Red Blossom using a California law that took effect in 2015. The law was meant to address wage theft and victims’ inability to recover what they’re owed from “undercapitalized direct employers,” according to the workers’ opening brief, but state courts haven’t addressed the provision at issue here.

An expansive approach to the law could make client employers of thousands of companies throughout California, agribusiness groups said. But a narrow reading could further limit the circumstances in which workers can recover wages from companies that ultimately benefit from their labor, according to employment rights advocates.

If the farmworkers win, it would “send a message to business that creating corporate layers between workers and the businesses that profit from their work will not help companies evade liability” for employment law violations, George A. Warner, director of Legal Aid at Work’s Wage Protection Program and co-author of an amicus brief filed in support of the farmworkers, told Bloomberg Law.

‘Client Employer’ Scope

The lower court held a bifurcated bench trial on Red Blossom and Better Produce’s liability in 2021, ultimately ruling that the companies weren’t client employers under Section 2810.3 of the California Labor Code. The statute defines client employers as business entities that obtain or are provided workers to perform labor within their usual course of business.

The workers argue that the district judge improperly looked to state and federal “joint employer” principles in evaluating the potential liability of Better Produce and Red Blossom. Instead, the lower court should have assessed their relationship using the “new and broader basis for employer liability under 2810.3,” the farmworkers say.

The companies urged the appellate court to leave the district judge’s ruling undisturbed. Red Blossom accuses the workers of pursuing the case “solely to achieve a radical legal change” and “stretch” the client employer law “beyond its clear statutory language and legislative purpose.” Better Produce argued that the statute is clear as written, so the farmworkers should take their concerns to the state legislature, not the court system.

The law “has not been the subject of much litigation, so an expansive reading of it could impact many industries,” Robert G. Hulteng, a San Francisco-based Littler Mendelson PC shareholder who filed an amicus brief on behalf of agribusiness groups, told Bloomberg Law. A broad interpretation “would wreak havoc on California businesses,” the brief said.

In contrast, if the Ninth Circuit takes a narrow approach to the law, it would “further encourage corporations to engineer corporate relationships in manners that nominally separate workers from the companies that directly profit from their work,” Warner, whose organization joined with the National Employment Law Project in supporting the farmworkers, said.

What’s Next

The Western Growers Association, the Ventura County Agricultural Association, the Grower-Shipper Association of Santa Barbara and San Luis Obispo Counties, the Grower-Shipper Association of Central California, the California Strawberry Commission, and the California Fresh Fruit Association joined together in support of Red Blossom and Better Produce.

If the appellate court adopts the farmworkers’ preferred reading of the statute, thousands of California companies—including hospitals, sports venues, and car dealerships—would instantly become client employers, “dramatically” impacting their operations, according to the agribusiness groups’ brief.

The state law was designed to “encompass the multitude of businesses’ outsourcing schemes,” the farmworkers told the Ninth Circuit. They’re confident that when the appellate court reviews the record, the “undisputed facts” will show it applies to their situation.

“Of course, the Ninth Circuit is not the final arbiter of the meaning of California law, and even a negative decision could ultimately be modified or reversed by later state courts,” Warner, the Legal Aid at Work program director, said.

California Rural Legal Assistance Foundation represents the farmworkers. Constangy, Brooks, Smith & Prophete LLP; Twitchell & Rice LLP; and Westlake Village, Calif.-based Todd C. Hunt represent Better Produce. Sheppard, Mullin, Richter & Hampton LLP and Anastassiou & Associates represent Red Blossom.

The case is Morales-Garcia v. Better Produce Inc., 9th Cir., No. 22-55119, oral arguments 2/10/23.