On February 5, 2013, a federal judge in the Eastern District of California issued a decision in Arredondo vs. Delano Farms1 following a seven-day bench trial on the limited issue of whether Delano Farms employed the field crews of its farm labor contractors under the Migrant Seasonal Agricultural Workers Protection Act (“MSPA”), and under applicable California law. Even though the judge agreed that Delano Farms had little power to direct the work of the farm labor contractors’ crews, and that the contractors were true independent contractors, the court found Delano Farms employed the contractors’ employees under the MSPA and California law. In other words, the court ruled that Delano Farms was a joint employer and refused to dismiss the wage and hour claims brought by the FLC’s employees.
Unfortunately for many producers, the arrangement between Delano Farms and its FLC is typical of grower/FLC arrangements — arms-length business relationships. If the decision is allowed to stand on appeal, which is far from assured, it threatens to expose producers who rely on FLCs to uncertainty at best, or worse, potential liability.
Independent Contractor or Employee?
Delano Farms is a grower of table grapes that has been in operation for more than 19 years. It owns approximately 6,300 acres of non-contiguous vineyards in Central California. Like many large producers, Delano utilizes farm labor contractors for many of its farming functions, including pre-harvest field work, harvesting and packing grapes, and moving the packs to a cold storage facility.
The court first sought to determine if the farm labor contractor is a true independent contractor or in fact an employee of Delano. If he is an employee, then the agricultural workers in the farm labor contractor's crew are deemed to be employees of the grower.
In making this determination, courts are to consider all circumstances, including the following:
1. The nature and degree of the putative employer’s control as to the manner in which the work is performed;
2. The putative employee’s opportunity for profit or loss depending upon his/her managerial skill;
3. The putative employee’s investment in equipment or materials required for the task, or the putative employee’s employment of other workers;
4. Whether the services rendered by the putative employee require special skill;
5. The degree of permanency and duration of the working relationship;
6. The extent to which the services rendered by the putative employee are an integral part of the putative employer’s business.
With regard to the first criterion, the court found that Delano did not supervise fieldwork as it was being performed. Only the contractor’s foremen and supervisors oversaw the picking and packing techniques and also were responsible for meting out disciplinary action. The contractor made many of the daily decisions regarding the harvest and pre-harvest work, including deciding which field should be harvested to procure a particular quality of grape and how many crews would be needed to procure the desired quantity. As for the cold storage activities, the evidence showed that it was the contractor’s, and not Delano’s quality control person’s decision to call workers in from the fields to repack boxes in the cold storage facility. As for the daily communications between Delano’s sales team and the contractor, these communications were intended to communicate customer demands and ensure the safety of the workers, not to guarantee to Delano Farms that the workers were performing satisfactorily.
The court found that since Delano’s control over the work was limited to supervision of quality control and agricultural decisions that would be expected of a grower, the degree of control by Delano over the contractor did not rise to the level of an employment relationship.
The court then looked at each of the other five criteria in turn to determine that, in this case, the contractor was a bona fide independent contractor. Since the contractor was not employed by Delano Farms, the contractor’s employees were not deemed to be employees of Delano by virtue of their employment by the contractor.
Next, the court turned to the question of whether Delano was a joint employer. According to the court, “In the joint employment analysis, the ultimate question to be determined is the economic reality—whether the worker is so economically dependent upon the agricultural employer… as to be considered its employee.” The court then looked to both regulatory and non-regulatory factors found in case law. The regulatory factors under current MSPA regulations include:
1. Whether the agricultural employer has the power, either alone or through control of the farm labor contractor to direct, control, or supervise the worker(s) or the work performed (such control may be either direct or indirect, taking into account the nature of the work performed and a reasonable degree of contract performance oversight and coordination with third parties);
2. Whether the agricultural employer has the power, either alone or in addition to another employer, directly or indirectly, to hire or fire, modify the employment conditions, or determine the pay rates or the methods of wage payment for the worker(s);
3. The degree of permanency and duration of the relationship of the parties, in the context of the agricultural activity at issue;
4. The extent to which the services rendered by the workers are repetitive, rote tasks requiring skills which are acquired with relatively little training;
5. Whether the activities performed by the worker(s) are an integral part of the overall business operation of the agricultural employer;
6. Whether the work is performed on the agricultural employer's premises, rather than on premises owned or controlled by another business entity; and
7. Whether the agricultural employer undertakes responsibilities in relation to the workers which are commonly performed by employers, such as preparing and/or making payroll records, preparing and/or issuing pay checks, paying FICA taxes, providing workers' compensation insurance, providing field sanitation facilities, housing or transportation, or providing tools and equipment or materials required for the job (taking into account the amount of the investment).
The court also analyzed a number of non-regulatory factors, including the following:
1. Whether the work was a specialty job on a production line;
2. Whether responsibility under the contracts between a labor contractor and an employer pass from one labor contractor to another without material changes;
3. Whether the premises and equipment of the employer are used for the work;
4. Whether the employees had a business organization that could or did shift as a unit from one worksite to another;
5. Whether the work was piecework and not work that required initiative, judgment or foresight;
6. Whether the employee had an opportunity for profit or loss depending upon the alleged employee's managerial skill;
7. Whether there was permanence in the working relationship; and
8. Whether the service rendered is an integral part of the alleged employer's business.
The court emphasized that “No one factor is dispositive of the ultimate question; nor must a majority or a particular combination of factors be found for an employment relationship to exist....”, but rather “[a] court should consider all ... factors ... ‘relevant to the particular situation’ in evaluating the ‘economic reality’ of an alleged joint employment relationship.” Ultimately, the determination of the relationship depends on the circumstances in their entirety.
Looking first to the regulatory factors, the court noted, as stated above that Delano’s power to direct, control, or supervise the work was minimal.
The court also found the evidence at trial suggested that Delano did not have the power to modify the employment conditions of the workers. However, when it came to determining methods of pay, the court found that Delano wanted to have, and did in fact exercise, some control over workers’ wages in order to gain the benefit of a better reputation. Testimony at trial indicated that Delano wanted “to have the best people” and to be “be known as an ... employment friendly company.”
Looking at “permanency and duration,” the court found that while some workers did regularly return to harvest at Delano year after year, the contractor could, and did, assign workers to different growers as needed. As a result, the court found that the permanency and duration of the relationship between the workers and Delano was minimal.
Analyzing the rest of the regulatory factors, the court determined that the pre-harvest and harvest work can be quickly learned and is a “repetitive, rote task that is similar to production on an assembly line,” relying on cases holding that such agricultural farm work consists primarily of physical labor, requiring no special technical knowledge or skill. It was also undisputed that the work is an integral part of Delano’s overall business operation and that the work was performed entirely on Delano’s premises.
Next the court examined whether Delano undertook responsibilities which are commonly performed by employers. Delano did not manage the workers’ payroll, provide workers’ compensation insurance, provide field sanitation facilities, or provide housing or transportation. Nor did it provide equipment required for the job, such as shears or picking trays used by the workers in the field to collect the grapes. Thus, the court found Delano did not undertake any responsibilities commonly performed by an employer. Next, the court considered the non-regulatory factor of whether responsibility under the contracts between a labor contractor and an employer pass from one labor contractor to another without material changes. A contract between a producer and a FLC is without material changes when the “contracts were standard for the industry and involved little negotiation.”
In this case, Delano and the contractor both attempted to determine the current industry standard for wage rates, box bonuses, and commissions before discussing the terms of the contract, resulting in contract terms that deviated only slightly from these standards. The court cited as an example the fact that the commission paid to the contractor was 37.5 percent, “well within the industry range of thirty to forty percent.” The court found persuasive the fact there was no evidence that Delano and the FLC did not agree to “unique terms or contemplated substantial deviation from the industry standard.” Thus, the court found the contract between Delano and the FLC could pass from Delano to another FLC without any material changes, thereby supporting a finding of joint employment.
Considering the other regulatory factors, the court found the workers were part of organized crews that could shift from one worksite to another depending on the day. However, there was no evidence that a worker's managerial skill could affect the workers' opportunity for profit or loss.
Taking all relevant considerations, including both regulatory and non-regulatory factors, in determining the economic reality between Delano and the contractor, the court concluded that the FLC’s crews had sufficient economic dependence on Delano to support a finding that Delano jointly employed plaintiffs with the FLC. Therefore, the court held that Delano employed the field workers under MSPA.
Finally, looking to California law, the court found that Delano and the FLC together negotiated and set the field workers’ rate of pay as part of the FLC contract. Delano negotiated the workers’ wage rate, in part to control those rates and attract the best talent. Also, the court found Delano had the power or authority to negotiate and set an employee's rate of pay. Based on these facts the court ruled that Delano was the employer of the field workers under California law.
To state the obvious, this decision is troubling for most producers that utilize labor contractors. In finding Delano to be a joint employer under MSPA and California law, the court found most persuasive the fact that Delano and the FLC utilized standard contract terms, including the fact that the commission paid to the contractor was within an industry range, and did not have unique terms. However, the industry, like many industries (e.g., real estate brokers, talent agents) has commission load norms. Any commission that is much lower or much higher would not withstand scrutiny.
Also, it should not be surprising that Delano had an interest in ensuring that its contractor’s workers were paid above the industry standard wage because it wanted to attract the best workers. These are commonly considered best practices, but under the reasoning of Arredondo, such actions would put most producers that utilize labor contractors at risk. Ensuring that the FLC’s crews are paid better than average is good for productivity, morale, and a sure way to avoid unwanted union attention. It should not be an indication that the producer is a joint employer.
In light of Arredondo, producers that utilize labor contractors should have their FLC contracts reviewed by experienced employment and labor law counsel.
1 Arredondo v. Delano Farms Co., CIV. 1:09-01247 WBS, 2013 WL 459234 (E.D. Cal. Feb. 5, 2013)
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