Futrell v. Payday California: Court of Appeal Affirms Finding that Payroll Processing Company Did Not Employ Plaintiff

Futrell v. Payday California, Inc. (December 16, 2010) --- Cal.Rptr.3d ----, 2010 WL 5117629, is one of the first published appellate cases applying the Supreme Court's recent decision in Martinez v. Combs, which defines employment for California wage law purposes. The Court described the case as follows:

This appeal arises from a class action alleging violations of sections of the Labor Code and the federal Fair Labor Standards Act (FLSA) by a payroll processing company operating in the local television commercial production industry. Plaintiffs' primary claim is that the payroll company violated various Labor Code and FLSA wage statutes, including Labor Code sections 510 and 1194 (authorizing a private right of action), by failing to pay statutorily required overtime compensation rates to Plaintiffs. In the context of a motion for summary adjudication of issues (SAI), the trial court ruled the payroll company had not been Plaintiffs' “employer.” The court thereafter entered judgment in favor of the payroll company, and Plaintiffs filed the appeal that comes before us today.

While Plaintiffs' appeal was pending in our court, the Supreme Court decided Martinez v. Combs (2010) 49 Cal.4th 35 (Martinez), cementing at least three employment principles in place which are relevant to the appeal. First, “no generally applicable rule of law imposes on anyone other than an employer a duty to pay wages.” (Id. at p. 49, italics added.) Second, a wage order adopted by the Industrial Welfare Commission (IWC) for a particular occupation, trade or industry, “and not the common law, properly defines the employment relationship in [an] action under section 1194.” (Id. at p. 62; id. at pp. 52-66.) Third, wage orders issued by the IWC “do not incorporate the federal definition of employment” under the FLSA. (Martinez, at p. 52; id. at pp. 66-68.) Because our review of the trial court's ruling on the motion for SAI is de novo (McDonald v. Antelope Valley Community College Dist. (2008) 45 Cal.4th 88, 114), we now apply Martinez. Having done so, and having separately considered federal case law interpreting the FLSA, we affirm the judgment in favor of the payroll company.

Slip op. at 1. The evidence on summary adjudication included the following:

Payday's evidence in support of its motion for SAI showed that Payday did not hire or fire Futrell or have the authority to do so. Further, the evidence showed Payday did not control Futrell's work, did not set or negotiate his wages, did not assign or supervise his work, did not determine his hours or conditions of employment, and did not set his work schedule. In addition, Payday presented evidence that it never entered into a written or oral employment contract with Futrell.

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Futrell's evidence showed he completed timecards, employee information sheets, employment eligibility verifications, and W-4 employee withholding certificates provided by Payday, and that Payday collected the information about the hours he worked from the timecards and placed the information into Payday's computer payroll system to generate Futrell's paychecks. The pay stubs provided with Futrell's paychecks identified Futrell as the “employee” and identified Payday as the “employer of record.” Payday furnished W-2 forms which identified Payday as Futrell's “employer.” Futrell also presented evidence that Payday was considered by the Internal Revenue Service as an employer of record for income tax and unemployment insurance purposes. In addition, the evidence showed that the funds accessed for Futrell's paychecks were drawn on Payday's accounts and that Payday paid premiums for workers' compensation insurance and unemployment insurance covering Futrell. Don McVeigh, an expert in “the insurance industry, including matters involving workers' compensation insurance,” submitted a declaration in which he stated that only an “employer” can purchase workers' compensation insurance. Finally, Futrell showed the general practices at Reactor's television commercial productions included a freelance production supervisor working on site “to liaise” with Payday.

Slip op. at 3. The trial court granted the motion, and the Court of Appeal affirmed, holding:

1. Futrell introduced no evidence to show that Payday controlled his wages, hours, or working conditions (Slip op. at 7);
2. One "exercises control over workers' wages" when it "has the power or authority to negotiate and set an employee's rate of pay, and not [merely when it] is physically involved in the preparation of an employee's paycheck (Slip op. at 7);
3. "There is no evidence in the current case Payday allowed Futrell to suffer work, or permitted him to work, because there is no evidence showing Payday had the power to either cause him to work or prevent him from working" (Slip op. at 8);
4. "Payday did not direct or supervise Futrell at the production sites" or meet any of the secondary indicia of employment (Slip op. at 8-9);
5. Payday did not employ Futrell under the FLSA "economic realities" test (Slip op. at 9-10).
6. Payday was not estopped from denying that it employed Futrell "because, even accepting Futrell's evidence that people affiliated with Payday made statements indicating that he was a Payday employee, there is no substantial evidence showing that Futrell did any act - e.g., worked on the side apart from his police officer position - only because Payday made such statements." (Slip op. at 11).

The opinion is available here.