The Ninth Circuits Narrowly Construes Labor Code section 2810.3, Affirming a Win for Strawberry Marketers

The question in Morales-Garcia v. Better Produce, Inc., et al, __ F. 4th __, 2023 WL 3749314, *3 (2023), was whether strawberry Marketers, who entered into yearly marketing and sublease agreements with Growers, which specified that the land would be used only to grow strawberries, and that the Marketers had the exclusive right to sell the strawberries to their retail customers, who provided packaging materials to the Growers for the strawberries, and had the strawberries placed into containers with the Marketers' label on them, retained the right to enter the land to conduct inspections of the strawberries, and to conduct food safety compliance inspections of the strawberries, who provided financial advances to the Growers to cover worker payroll and other operating expenses, and who retained the right to enter the lands if the Growers filed for insolvency, stopped growing the strawberries, or failed to follow customary practices for the growing of strawberries, met the definition of "client employer" in California Labor Section 2810.3(a)(1)-(3), (6), and were therefore liable for the laborers' wages that the Growers failed to pay. Strictly interpreting the definitions of "client employer," and "usual course of business," the Ninth Circuit held that the Marketers were not client employers, because it found that the laborers did not perform the work at the Marketers' "premises or worksite." Id. at *8.

As the Ninth Circuit recognized, the California Legislature enacted Section 2810.3 "to establish a new form of liability for employers, termed 'client employers,' who obtain workers from third-party contractors." Id. at *2. Section 2810.3 defines "client employer" as a "business entity, regardless of its form, that obtains or is provided workers to perform labor within its usual course of business from a labor contractor." Cal. Lab. Code section 2810.3(a)(1)(A). A "labor contractor" is defined as "an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer's usual course of business." Id. at section 2810.3(a)(3).

The Ninth Circuit's analysis focused on the definition of "usual course of business," which Section 2810.3(a)(6) defines as "the regular and customary work of a business, performed within or upon the premises or worksite of the client employer." Despite the extensive contacts with the location where the laborers grew and harvested the strawberries, because the Marketers then took the strawberries to another location for cooling before selling the strawberries to retailers, the Ninth Circuit held that the laborers did not perform the work on the Marketers "premises or worksite," and therefore the Marketers were not "client employers." Explaining its reasoning, the Ninth Circuit held that Section 2810.3 "expands liability for a company that may use financially shaky subcontractors to provide workers to perform the work of the company's business at the company's place of business. It does not go so far as to extend liability for the wage of workers performing work elsewhere, even if the workers are producing a product necessary to that company's business." 2023 WL 3749314, *8.

Absent from the Ninth Circuit's analysis is any recognition of the fact that, per the California Supreme Court, "in light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection." Morillion v. Royal Packing Co., 22 Cal. 4th 575, 592 (2000). While failing to liberally construe section 2810.3 "with an eye to promoting" the remedial nature of the statute, the Ninth Circuit also gave no credence to the Appellants' and Amici's arguments that "worksites" can include locations away from the company's headquarters, and the post-COVID-19 reality that workers can perform work for employers virtually anywhere. While recognizing that the purpose of 2810.3 was to stop employers from obtaining labor from financially shaky third parties and then disavowing any employer obligations to pay the employee's wages, the Ninth Circuit found the fiscal reality of the situation of no import. The factual recitation specifically recognized that the Marketers "provided financial advances to the Growers to cover worker payroll." 2023 WL 3749314, *3. Clearly, the Marketers knew the precarious financial condition of the Growers, as they fronted the payroll so that the workers continued to pick the strawberries that the Marketers sold. The Marketers also specifically protected themselves from the Growers' potential insolvency, by retaining the right of reentry onto the land where the strawberries were grown, if the circumstance occurred. If the Growers were not "financially shaky", the Marketers would have needed to take such actions. While the Ninth Circuit's ruling is coincident with Martinez v. Combs, 49 Cal. 4th 35 (2010), as the Appellants stressed, the Legislature enacted Section 2810.3 after, and in response to, this decision.

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