Businesses Employing Workers Supplied By Farm Labor Contractors or Professional Employer Organizations May Create an Unintended Joint Employer Relationship, Resulting in Unforeseen Liability

May 2013

Businesses in the farming and agricultural industries have used farm labor contractors (“FLCs”) and/or other professional employer organizations for decades to supply a steady, but seasonal workforce to assist in the pre-harvest and harvest process.  FLCs can be attractive because, among other things, they can provide a robust and able workforce to farmers who may have difficulty finding enough laborers to complete all the necessary work during peak planting and harvesting periods.  Using FLCs can also allow farming and agricultural companies to devote the majority of their time and focus to the more “high level”/big picture needs of their businesses, while delegating the day-to-day supervision of laborers to the FLCs.  In California, FLCs must be licensed by the Labor Commissioner.  Labor Code § 1683.  FLCs can improve a business’ production and cost-effectiveness.  However, entering into relationships with FLCs can also leave farmers exposed to lawsuits based on the FLC’s failure to adhere to California’s employment laws.

A recent decision out of the United States District Court for the Eastern District of California illustrates this very real risk.  In Arredondo v. Delano Farms Co., the court found that Delano Farms was the “joint employer” of the labor workforce supplied by two FLCs, subjecting Delano to claims brought by the farm workers under the Migrant and Seasonal Agricultural Worker Protection Act, California Wage Order 14, and the California Labor Code.  The court found the existence of a joint employer relationship, even though it also held that the FLCs were “independent contractors” of Delano.

Delano Farms contracted out many of its farming functions, such as pre-harvest field work, picking and packing grapes during harvest, and moving the packed grapes from the fields to the cold storage facility, to farm workers employed by FLCs.  The FLCs provided field labor services to Delano Farms for approximately 19 years.

Delano Farms’ power to direct, supervise, or control the farm workers was, as admitted by the court, very limited.  It was by and large limited to ensuring quality control.  Delano Farms had no power to hire or fire the farm workers, did not set field conditions, and did not monitor the workers’ breaks.  The court also found that there was not a significant level of “permanency” in the relationship between the laborers and Delano Farms – the majority of the workers were seasonal and they were regularly assigned to different farms by the FLCs.  Furthermore, Delano Farms did not undertake responsibilities commonly performed by employers.  It did not manage payroll, provide workers’ compensation insurance, provide field sanitation facilities, or provide housing or transportation ― these services were provided by the FLCs.  It was also the FLCs, and not Delano Farms, that provided the workers with tools and equipment

However, the court did find that Delano Farms exercised control over the farm workers’ wages.  Specifically, Delano Farms and the FLCs actively discussed workers’ wages when negotiating their contract.  Delano Farms wanted to set the wages above the industry standard to recruit the “best people” and build its reputation for being an “employment friendly company.”  The court also found that the laborers performed work that was an integral part of Delano Farms’ business.  The court further noted that the majority of the work was performed primarily on Delano Farms’ property.  Also, the jobs performed by the workers were not highly skilled, and could be learned within fifteen to thirty minutes.  Moreover, testimony showed that the negotiations between Delano Farms and the FLCs never involved unique terms nor contemplated substantial deviation from the industry standard.  The workers were paid by the hour, thus the workers’ managerial skills did not affect their opportunity for profit or loss.

After weighing the factors relevant to finding the existence of a joint employer relationship, the court concluded that the workers had sufficient economic dependence on Delano Farms to find that the farm jointly employed the workers.  Factors the court considered in its analysis included:

• whether Delano Farms had the power to direct, control, or supervise the laborers both directly and indirectly;
• whether Delano Farms had the power to hire or fire, modify employment conditions, or determine rates/methods of pay with respect to the laborers;
• the permanency and duration of the relationship between the laborers and Delano Farms;
• the extent to which the services rendered by the laborers were repetitive, rote tasks requiring skills that were acquired with relatively little training;
• whether the activities performed by the laborers were an integral part of the overall business operation of Delano Farms;
• whether the work is performed on Delano Farms’ premises;
• whether Delano Farms undertook responsibilities in relation to the laborers which were commonly performed by employers, such as preparing or making payroll, issuing pay checks, providing workers’ compensation insurance, providing housing or transportation, and/ providing tools;
• whether responsibility under the contracts between the FLCs and Delano Farms passed from one FLC to another without material changes; and
• whether the laborers had the opportunity for profit or loss depending on their own managerial skills.

There is a strong likelihood this decision will be challenged.  However, for now it remains a case that courts may look to for precedent or guidance.  Companies who use or are considering using FLCs or other professional employer organizations should evaluate their relationship with the supplied workers and consider whether the possibility of a joint employer relationship exists.  There are no bright line rules for what constitutes a joint employer relationship.  As noted, above, courts will consider a variety of factors.

Companies that use or may use FLCs or other professional employer organizations with the hope of avoiding a joint employer classification should consider relinquishing as much control as possible over the supplied workers to the FLC.  While this may not, in every circumstance, eliminate the possibility of a joint employer relationship it will help strengthen the contracting company’s defense.

Unfortunately, the Arredondo case indicates that a widely used practice between farms and FLCs can give rise to a joint employer relationship.  Specifically, Delano Farms and its FLCs had an arms-length business relationship whereby the FLCs dictated the majority of the terms and conditions of the laborers’ employment, but allowed the farm to influence the hourly wages of the employees.  The work performed by the laborers (pre-harvest and harvest processes) was an integral part of Delano Farms’ operations, very little training or expertise was required to perform the work, and the work was performed on Delano Farms’ premises.  One avenue companies can explore is including well drafted indemnification and/or duty to defend provisions in their contracts with FLCs.

Companies should also consider requiring FLCs to provide them with copies of the laborers’ wage statements and time records on a regular basis, so that they can confirm whether they are paying the laborers in compliance with applicable laws.  While this oversight may be construed as exercising control over the laborers’ wages (a factor that tips in favor of finding a joint employer relationship), it may be a good practice in light of the Arredondo court’s view that common relationships between FLCs and contracting companies may give rise to a joint employer relationship ― routine review of wage and time records will at least provide farmers an opportunity to discover and in turn request FLCs correct any existing employment law violations.  For farmers, the Department of Industrial Relations maintains a “farm labor contractors license database,” which can assist in locating reputable contractors (http://www.dir.ca.gov/databases/dlselr/farmlic.html).

While the Arredondo decision involved farmers and FLCs, the factors the court analyzed have similar application to any business that contracts with similar professional employer organizations to supply workers.  Other common examples of scenarios where “joint employment” is heavily litigated involve temporary agencies and parent/subsidiary relationships.  If a joint employer relationship is found, then both employers are liable for any violations of applicable labor and employment laws, even if one employer was much more “hands on” than the other.

Companies are encouraged to consult legal counsel prior to using FLCs or other professional employer organizations.

Please note that the information contained in this newsletter is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.