Cruz v. MM 879, Inc.

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 ANGELA CRUZ; MARIA MADRIGAL; No. 1:15-cv-01563-TLN-EPG LOURDES BAIZ; and CHRISTIE 12 GOODMAN, individually, residing in California, 13 ORDER GRANTING DEFENDANT BBSI’S Plaintiffs, MOTION FOR SUMMARY JUDGMENT 14 v. 15 MM 879, INC.; BARRETT BUSINESS 16 SERVICES, INC.; THE SERVICEMASTER COMPANY, LLC; 17 MERRY MAIDS LP; and MM MAIDS 18 LLC. 19 Defendants. 20 This matter is before the Court on Defendant Barrett Business Services, Inc.’s (“BBSI”) 21 Motion for Summary Judgment. (ECF No. 175.) Plaintiffs Angela Cruz, Maria Madrigal, 22 Lourdes Baiz, and Christie Goodman (collectively, “Plaintiffs”) filed an opposition. (ECF No. 23 179.) BBSI filed a reply. (ECF No. 180.) For the reasons set forth below, the Court GRANTS 24 BBSI’s motion. 25 /// 26 /// 27 /// 28 1 I. FACTUAL AND PROCEDURAL BACKGROUND

2 All parties are aware of the factual background as set forth in the Court’s previous orders

3 (ECF Nos. 162, 161), and that factual background is adopted herein. In summary, the instant

4 action arises from Plaintiffs’ certified class action lawsuit alleging violations of various California 5 wage and hour laws. (See generally ECF No. 94.) Defendants removed the action to this Court 6 on October 14, 2015. (ECF No. 1.) 7 On August 26, 2016, Plaintiffs filed a motion for class certification. (ECF No. 99.) On 8 September 8, 2016, Defendants The ServiceMaster Company, LLC (“ServiceMaster”), Merry 9 Maids, LP (“Merry Maids”), MM Maids, LLC (“MM Maids”) (collectively, “the Merry Maids 10 Defendants”) filed a motion for summary judgment, arguing they could not be held liable for the 11 employment-related practices of a franchisee (Defendant MM 879, Inc.) based on the undisputed 12 facts, and were therefore entitled to judgment dismissing all claims against them as a matter of 13 law. (ECF. No 112 at 6.) 14 On January 18, 2019, the Court entered an order granting Plaintiffs’ motion for class 15 certification and appointing the named Plaintiffs as class representatives. (ECF No. 161 at 14.) 16 On the same day, the Court also entered an order granting the Merry Maids Defendants’ motion 17 for summary judgment as to Plaintiffs’ joint employment theory of liability and denying the 18 motion as to Plaintiffs’ ostensible agency theory of liability. (ECF No. 162 at 16.) 19 The Merry Maids Defendants filed a motion for reconsideration on February 1, 2019. 20 (ECF No. 163.) In support of their motion, the Merry Maids Defendants cited the Ninth Circuit’s 21 intervening decision in Salazar v. McDonald’s Corp., 944 F.3d 1024, 1033 (9th Cir. 2019) 22 (“Salazar III”), wherein the court held that a franchisor could not be held liable for wage and hour 23 violations under an ostensible agency theory pursuant to Wage Order 5-2001. On January 31, 24 2020, the Court — now bound by Salazar III — granted the motion for reconsideration and 25 dismissed Defendants ServiceMaster, Merry Maids, and MM Maids from the action. (ECF No. 26 182.) Plaintiffs filed a motion for reconsideration on February 28, 2020, which this Court denied 27 on November 24, 2020. (ECF Nos. 183, 191.) 28 /// 1 BBSI filed the instant motion for summary judgment on October 9, 2019, arguing it could

2 not be held liable for Defendant MM 879, Inc.’s (“MM 879”) employment-related practices.

3 (ECF No. 175.) BBSI is a professional employer organization that provides MM 879 with

4 payroll processing, offsite hu man resource consulting services, and workers’ compensation 5 insurance coverage. (ECF No. 179-1 at 2.) Plaintiffs filed an opposition (ECF No. 179), and 6 BBSI filed a reply (ECF No. 180). 7 II. STANDARD OF LAW 8 Summary judgment is appropriate when the moving party demonstrates no genuine issue 9 as to any material fact exists and the moving party is entitled to judgment as a matter of law. Fed. 10 R. Civ. P. 56(a); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). Under summary 11 judgment practice, the moving party always bears the initial responsibility of informing the 12 district court of the basis of its motion, and identifying those portions of “the pleadings, 13 depositions, answers to interrogatories, and admissions on file together with affidavits, if any,” 14 which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. 15 Catrett, 477 U.S. 317, 323 (1986). “[W]here the nonmoving party will bear the burden of proof 16 at trial on a dispositive issue, a summary judgment motion may properly be made in reliance 17 solely on the pleadings, depositions, answers to interrogatories, and admissions on file.” Id. at 18 324 (internal quotations omitted). Indeed, summary judgment should be entered against a party 19 who does not make a showing sufficient to establish the existence of an element essential to that 20 party’s case, and on which that party will bear the burden of proof at trial. 21 If the moving party meets its initial responsibility, the burden then shifts to the opposing 22 party to establish that a genuine issue as to any material fact actually does exist. Matsushita Elec. 23 Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585–87 (1986); First Nat’l Bank of Ariz. v. Cities 24 Serv. Co., 391 U.S. 253, 288–89 (1968). In attempting to establish the existence of this factual 25 dispute, the opposing party may not rely upon the denials of its pleadings, but is required to 26 tender evidence of specific facts in the form of affidavits, and/or admissible discovery material, in 27 support of its contention that the dispute exists. Fed. R. Civ. P. 56(c). The opposing party must 28 demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the 1 suit under the governing law, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986), and that

2 the dispute is genuine, i.e., the evidence is such that a reasonable jury could return a verdict for

3 the nonmoving party. Id. at 251–52.

4 In establishing a fact ual dispute, the opposing party need not establish a material issue of 5 fact conclusively in its favor. It is sufficient that “the claimed factual dispute be shown to require 6 a jury or judge to resolve the parties’ differing versions of the truth at trial.” First Nat’l Bank, 7 391 U.S. at 288–89. Thus, the “purpose of summary judgment is to ‘pierce the pleadings and to 8 assess the proof in order to see whether there is a genuine need for trial.’” Matsushita, 475 U.S. 9 at 587 (quoting Rule 56(e) advisory committee’s note on 1963 amendments). 10 In resolving the summary judgment motion, the court examines the pleadings, depositions, 11 answers to interrogatories, and admissions on file, together with any applicable affidavits. Fed. 12 R. Civ. P. 56(c); SEC v. Seaboard Corp., 677 F.2d 1301, 1305–06 (9th Cir. 1982). The evidence 13 of the opposing party is to be believed, and all reasonable inferences that may be drawn from the 14 facts pleaded before the court must be drawn in favor of the opposing party. Anderson, 477 U.S. 15 at 255. Nevertheless, inferences are not drawn out of the air, and it is the opposing party’s 16 obligation to produce a factual predicate from which the inference may be drawn. Richards v. 17 Nielsen Freight Lines, 602 F. Supp. 1224, 1244–45 (E.D. Cal. 1985), aff’d, 810 F.2d 898 (9th Cir. 18 1987). Finally, to demonstrate a genuine issue that necessitates a jury trial, the opposing party 19 “must do more than simply show that there is some metaphysical doubt as to the material facts.” 20 Matsushita, 475 U.S. at 586. “Where the record taken as a whole could not lead a rational trier of 21 fact to find for the nonmoving party, there is no ‘genuine issue for trial.’” Id. at 587. 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 1 III. ANALYSIS

2 BBSI argues it is not Plaintiffs’ employer and thus cannot be liable for any alleged wage

3 and hour violations. (ECF No. 175-1 at 2.) In opposition, Plaintiffs argue there are triable issues

4 regarding BBSI’s status as a n employer under both a joint employer theory and an ostensible 5 agency theory. (ECF No. 179 at 5.) The Court will address Plaintiffs’ arguments in turn. 6 A. Joint Employer Theory 7 “[I]n cases involving the issue of whether an employer-employee relationship existed for 8 purposes of the Labor Code wage statutes, [courts] will apply the Martinez definition.” Futrell v. 9 Payday California, Inc., 190 Cal. App. 4th 1419, 1431 (2010). Under Martinez, “to employ” 10 means (1) “to exercise control over the wages, hours or working conditions,” (2) “to suffer or 11 permit to work,” or (3) “to engage, thereby creating a common law employment relationship.” 12 Martinez v. Combs, 49 Cal. 4th 35, 64 (2010). A defendant can be an employer for liability 13 purposes if any one of the three prongs are satisfied. Id. 14 i. Control over Wages, Hours, or Working Conditions 15 Under the first prong of Martinez, BBSI may be a joint employer if it exercises control 16 over Plaintiffs’ “wages, hours, or working conditions.” 49 Cal. 4th at 64. Defendants argue that 17 Plaintiffs fail to cite even one instance where BBSI exercised any supervisory control over their 18 work in any manner. (ECF No. 180 at 4.) In opposition, Plaintiffs argue BBSI’s involvement in 19 developing and drafting the Employee Handbook “strongly suggests” direct involvement in 20 setting Plaintiffs’ rates of pay and working conditions. (ECF No. 179 at 17.) 21 Defendant has the better argument. Jeffrey Skadburg (“Skadburg”), the owner of MM 22 879, testified that BBSI processes MM 879 payroll checks, provides workers’ compensation 23 insurance, and gives human resources advice, but not advice on how to compensate employees. 24 (ECF No. 175-6 at 3.) Skadburg further testified that he and his brother make their “own 25 decisions about how to run the day-to-day operation” of MM 879. (Id. at 10.) Plaintiffs argue 26 that BBSI exercised control by drafting the Employee Handbook, which detailed the piece-rate 27 compensation scheme at issue and other terms and conditions of employment. (ECF No. 179 at 28 17.) But Plaintiffs admit that MM 879 subsequently edited sections of the Employee Handbook. 1 (Id.) Regardless, BBSI’s involvement drafting the Employee Handbook is not evidence that

2 BBSI ultimately oversaw the day-to-day application and enforcement of the policies and

3 procedures set forth in the Handbook. See Futrell, 190 Cal. App. 4th at 1433 (“[A] payroll

4 company, or any other perso n or entity that processes payroll, is not an employer because he, she, 5 or it, does not control the hiring, firing, and day-to-day supervision of workers supplying the 6 labor.”). Plaintiffs fail to provide any evidence from which the Court may draw even a 7 reasonable inference that anyone other than Skadburg and his brother exercised control over the 8 day-to-day operations of MM 879 employees. Plaintiffs thus fail to raise a triable fact under the 9 first prong of Martinez. 10 ii. To Suffer or Permit to Work 11 Under the second prong of Martinez, BBSI may be liable if it knew “that persons are 12 working . . . while being paid less than the minimum wage . . . and failed to prevent it, while 13 having the power to do so.” 49 Cal. 4th at 69. “The question under California law is whether 14 [BBSI] is one of Plaintiffs’ employers, not whether [BBSI] caused Plaintiffs’ employer to violate 15 wage-and-hour laws by giving the employer bad tools or bad advice.” Salazar, 944 F.3d at 1030. 16 Plaintiffs argue BBSI had actual knowledge of the wage violations because BBSI 17 processed payroll and issued pay stubs for MM 879. (ECF No. 179 at 19.) Plaintiffs then argue 18 BBSI had the capacity to prevent wage violations because BBSI can terminate contracts with 19 clients like MM 879 and has terminated client contracts in the past for failure to comply with 20 wage and hour laws. (Id.) 21 Plaintiffs provide no case law to support their argument. Further, such an argument is 22 similar to one this Court rejected as to the Merry Maids Defendants. (ECF No. 62 at 11.) In 23 finding there was no evidence the Merry Maids Defendants had the power to prevent MM 879’s 24 employees from working, the Court noted that a franchisor’s power to exert pressure on 25 franchisees through franchise agreements was insufficient to satisfy the second prong of 26 Martinez. (Id.); see also Martinez, 49 Cal. 4th at 70 (although a substantial purchaser might force 27 employment decisions on a supplier by withdrawing its business, “[s]uch a business relationship, 28 standing alone, does not transform the purchaser into the employer of the supplier’s workforce”). 1 The same logic applies here. There is no evidence that BBSI could prevent Plaintiffs from

2 working merely by terminating (or threatening to terminate) its contract with MM 879. To the

3 extent Plaintiffs are arguing BBSI could somehow prevent wage violations in its capacity as

4 payroll processor, the court i n Futrell declined to extend liability in similar circumstances. 190 5 Cal. App. 4th at 1434 (finding there was no evidence a payroll processing company had the 6 power to cause the plaintiff to work or prevent him from working); see also Salazar, 944 F.3d at 7 1030 (“Plaintiffs’ focus on responsibility for the alleged violations of wage-and-hour laws is 8 misplaced, because the ‘suffer or permit’ definition pertains to responsibility for the fact of 9 employment itself.”) (emphasis in original). As it is, Skadburg testified that BBSI’s services were 10 limited to running payroll checks, providing workers’ compensation insurance, and giving human 11 resources advice. (ECF No. 175-6 at 3.) BBSI’s Person Most Qualified, Thomas Stuart, as well 12 as BBSI’s Person Most Knowledgeable, Gerald Blotz, both testified that BBSI did not control 13 Plaintiffs’ employment. (ECF No. 175-5 at 7–9, 13, 17; ECF No. 175-7 at 4.) As discussed, 14 Plaintiffs fail to provide evidence to the contrary. Accordingly, Plaintiffs fail to raise a triable 15 fact under the second prong of Martinez. 16 iii. Common Law Employment Relationship 17 “The essence of the common law test of employment is in the ‘control of details.’” 18 Futrell, 190 Cal. App. 4th at 1434. “A number of factors may be considered in evaluating this 19 control, including: (1) whether the worker is engaged in a distinct occupation or business; (2) 20 whether, considering the kind of occupation and locality, the work is usually done under the 21 alleged employer’s direction or without supervision; (3) the skill required; (4) whether the alleged 22 employer or worker supplies the instrumentalities, tools, and place of work; (5) the length of time 23 the services are to be performed; (6) the method of payment, whether by time or by job; (7) 24 whether the work is part of the alleged employer’s regular business; and (8) whether the parties 25 believe they are creating an employer-employee relationship.” Id. Importantly, “[t]he parties’ 26 use of a label to describe their relationship does not control and will be ignored where the 27 evidence of their actual conduct establishes a different relationship exists.” Id. 28 /// 1 BBSI argues this case is similar to Futrell. (ECF No. 175-1 at 8.) In Futrell, the

2 defendant “provide[d] payroll processing and related services for companies that produce

3 television commercials.” Id. at 1424. The defendant regularly used form contracts for its

4 production company clients. Id. Those form contracts included provisions identifying the 5 defendant as “employer of temporary employees.” Id. The plaintiff worked as a private 6 policeman for one such production company, and he brought a putative class action against the 7 production company and the defendant as “joint employers” alleging various California Labor 8 Code violations. Id. at 1425. The Futrell court found that, despite documents that listed the 9 defendant as an employer, the defendant was not a joint employer because the defendant did not 10 direct or supervise the plaintiff at the production sites, did not provide any tools or the place of 11 work, did not set the plaintiff’s pay, did not benefit from the plaintiff’s services, and the 12 plaintiff’s services were not an integral part of the defendant’s regular business operations. Id. at 13 1435. The Futrell court also emphasized that defendant “did not and could not hire or fire [the 14 employee], nor did the defendant have any control over [his] work activities.” Id. 15 Plaintiffs argue that unlike the payroll processing company in Futrell, BBSI “had the 16 power and authority to hire, discipline, and fire Plaintiffs” and “retained numerous other rights to 17 control, manage, and oversee Plaintiffs’ work activities.” (ECF No. 179 at 14.) Plaintiffs 18 acknowledge that “the language and labels contained in contracts and agreements between parties 19 are not dispositive of the employment relationship,” but they argue such agreements still have 20 “probative significance.” (Id. at 15.) Plaintiffs argue that BBSI provided other services as well, 21 such as drafting the Employee Handbook. (Id.) Plaintiffs also argue that BBSI drafted an 22 Employee Safety Handbook and provided in-person assistance to MM 879 in at least one Labor 23 Commissioner hearing. (Id.) According to Plaintiffs, these facts create a triable issue as to 24 whether BBSI can be considered a joint employer under the third prong of Martinez. 25 The thrust of Plaintiffs’ argument appears to be that BBSI is a joint employer because it 26 retained rights to control certain aspects of Plaintiffs’ employment, even though there is no 27 evidence BBSI actually exercised such control. Plaintiffs cite Ayala v. Antelope Valley 28 Newspapers, Inc., 59 Cal. 4th 522, 533 (2014), wherein the court stated “[t]he existence of such 1 right of control, and not the extent of its exercise, gives rise to the employer-employee

2 relationship.” However, Plaintiffs fail to persuade the Court that Ayala is relevant to the instant

3 case. Plaintiffs ignore that Ayala involved a dispute over whether newspaper carriers were

4 independent contractors or e mployees. 59 Cal. 4th at 528. The Ayala court did not discuss joint 5 employment or the Martinez test. Plaintiffs also ignore that Ayala dealt with a motion for class 6 certification, and the court did not reach the merits of the claims. Id. (“[T]he sole question is 7 whether this case can proceed as a class action.”). More specifically, the issue before the Ayala 8 court was whether the employer’s right to control laid out in its contracts could be shown on a 9 class-wide basis. Id. at 534 (“At the certification stage, the importance of a form contract is not in 10 what it says, but that the degree of control it spells out is uniform across the class.”). The court 11 concluded that the trial court improperly denied class certification “both because of individual 12 variations in whether [the hirer] exercised control and because control was not pervasive, rather 13 than asking whether [the hirer’s] underlying right of control was subject to variations that would 14 defy class-wide proof and prove unmanageable.” Id. at 538. Even if Ayala was relevant in the 15 instant case, the Ayala court also noted, “While any written contract is a necessary starting point, . 16 . . the rights spelled out in a contract may not be conclusive if other evidence demonstrates a 17 practical allocation of rights at odds with the written terms.” Id. at 535. 18 Although Plaintiffs may have believed BBSI was their employer based on the 19 employment agreements and Employee Handbook, Futrell makes clear that “[t]he parties’ use of 20 a label to describe their relationship does not control and will be ignored where the evidence of 21 their actual conduct establishes a different relationship exists.” 190 Cal. App. 4th at 1435. Here, 22 despite the language of the documents cited by Plaintiffs, there is no evidence that BBSI in fact 23 had “control of details” as laid out in Futrell. Id. at 1434 (listing factors). Notably, Skadburg 24 himself testified that he did not consider his employees to be employees of BBSI, despite the 25 language in the Employee Handbook. (ECF No. 179-4 at 77.) The house cleaning services 26 performed by Plaintiffs were not for BBSI’s benefit, nor are such jobs an integral part of BBSI’s 27 regular business operations. Futrell, 190 Cal. App. 4th at 1435. There is no evidence that BBSI 28 directed or supervised Plaintiffs at worksites. See id. Similarly, there is no evidence BBSI 1 supplied the instrumentalities, tools, or the place of work. See id. Plaintiffs argue that BBSI

2 assisted Skadburg at a Labor Commissioner hearing regarding an employee’s failure to receive a

3 final paycheck, but Skadburg testified only that a BBSI representative attended the hearing and

4 talked to him about it. (ECF No. 179-4 at 68–69, 72.) Plaintiffs fail to explain how BBSI’s 5 presence and seemingly minor involvement at an unrelated hearing transforms BBSI into 6 Plaintiffs’ employer. Put simply, Plaintiffs’ evidence fails to create a triable issue as to whether 7 BBSI qualifies as their employer under the common law definition. See also Nasiri v. T.A.G. Sec. 8 Protective Servs., Inc., No. 18-cv-01170-NC, 2020 WL 5257865, at *3 (N.D. Cal. Sept. 3, 2020) 9 (granting summary judgment for a “back-office solutions company” that provided payroll 10 processing, financing, and workers’ compensation insurance — and was listed as the plaintiff’s 11 employer — because there was “simply no evidence that [the company] controlled any aspect of 12 [that plaintiff’s] employment”). As such, Plaintiffs have failed to establish an employment 13 relationship under the third prong of Martinez. 14 In sum, there is no triable issue under any of the three Martinez prongs. Accordingly, the 15 Court GRANTS BBSI’s motion for summary judgment as to the joint employer theory of 16 liability. 17 B. Ostensible Agency Theory 18 Next, BBSI argues it cannot be liable under the ostensible agency theory based on the 19 Ninth Circuit’s recent decision in Salazar III. In Salazar III, the Ninth Circuit expressly found a 20 franchisor could not be held liable for wage and hour violations under an ostensible agency theory 21 pursuant to Wage Order 5-2001. 944 F.3d at 1033. Plaintiffs admit the Court is bound by 22 Salazar III, but they argue that Salazar III does not apply because the case involved a franchisor- 23 franchisee relationship. (ECF No. 179 at 22.) However, the statutory interpretation analysis in 24 Salazar III is not so limited. The Ninth Circuit specifically looked to the definition of “employer” 25 from Wage Order 5-2001 § 2(H) and from that definition, concluded that, “[b]y its plain terms, 26 the reference to an ‘agent’ applies only to an entity that actually employs the worker or that 27 actually exercises control over the wages, hours, or working conditions of the worker.” Id. The 28 court, citing Cal. Civ. Proc. Code § 1859, further noted that while “agency principles ordinarily 1 encompass both actual and ostensible agency . . . the Wage Order is more specific and, therefore,

2 controls.” Id. As a result, the court held that the ostensible agency theory is inconsistent with the

3 plain terms of the Wage Order and is therefore precluded as a matter of law. Id. Having found

4 McDonald’s was not an emp loyer under Martinez, the Ninth Circuit concluded it could not be 5 liable under ostensible agency theory. Id. 6 Contrary to Plaintiffs’ argument, nothing in the Ninth Circuit’s ostensible agency analysis 7 was unique to the franchisor-franchisee relationship. As such, the Court concludes that the same 8 reasoning from Salazar III applies here. Similar to Salazar III, the Court has found that BBSI 9 was not Plaintiffs’ employer under Martinez. Consequently, this Court must find the ostensible 10 agency theory does not apply as a matter of law. Therefore, the Court GRANTS BBSI’s motion 11 for summary judgment as to the ostensible agency theory of liability. 12 IV. CONCLUSION 13 For all these reasons, the Court GRANTS BBSI’s Motion for Summary Judgment. (ECF 14 No. 175.) Defendant BBSI is hereby DISMISSED from the action. 15 IT IS SO ORDERED. 16 DATED: November 29, 2020 17 18 19 20 21 22 23 24 25 26 27 28