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Who is the employer?

By Thomas M Lee

One of the most common issues litigated in lawsuits for unpaid overtime wages is determining who is the "employer." This commonly arises when the owner of the business paid the employee's wages partially or completely in cash, but the business where the employee was working is actually owned and operated by a corporation.

Defense attorneys frequently argue that the corporation is the sole "employer," and as such the business owner, or shareholder of the corporation, is not responsible. They also argue that the only way to hold the owner/shareholder personally liable is that the employee must prove a legal theory called "alter ego," which can be difficult to prove. This means that the owner/shareholder's personal assets, such as their house, bank accounts, or car, can't be touched even if the employee wins their lawsuit, which can make collection difficult since corporations can easily shut down or file bankruptcy.

However, the California Supreme Court recently declared in Martinez v. Combs that the legal definition of "employer" broadly includes any person who controlled the wages, hours, and working conditions of an employee. This legal definition can be found in most Industrial Welfare Commission Wage Orders. The Wage Orders provide definitions and guidance on almost every aspect of the law concerning wages, meal breaks, hours, and other working conditions broken down by industry. Thus, employees can seek to pursue the personal assets of the owner/shareholder if they can prove they meet the Martinez and Wage Order definition of "employer," which is comparably easier than proving alter ego. The more facts the employee can prove, such as receiving cash wages from the owner/shareholder, being told what to do or what to wear, when to do something, and where to go, the more likely they can prove the owner/shareholder is the "employer."

Further, the Martinez definition can also help the employee recover their unpaid wages from other larger corporations that are separate and distinct from their own employer. For example, large cable and satellite TV companies have contracts with small businesses to handle the installation of their equipment for their customers at their homes. These small businesses have no relationship with the cable or satellite companies, and frequently file bankruptcy when they are sued, making it difficult for the employees to recover their unpaid overtime wages. However, if the cable company requires the small business to have the installation employees wear a uniform or badge with the cable company's name or logo and follow certain procedures established by the cable company, then the Martinez definition could include the cable company as an "employer." and the installation employee could seek recovery from the cable company in addition to the small business employer.

Please note that the information I am providing here in this entry, or in my website is NOT to be construed as legal advice nor is it meant to form an attorney-client relationship. For a free legal consultation by phone, please call or email me anytime.