Costco Not Joint Employer of Woman Hired by Staffing Agencies

December 2, 2021

A woman who was hired by staffing agencies to work at specialty events on the Costco premises was not a Costco employee, a federal appeals court ruled. The trial court, therefore, correctly dismissed her claims against Costco under California's wage and hour laws, the appellate court said. 

The plaintiff was hired to sell suppliers' products at what are known as "road show" events held in Costco stores. She argued that Costco was liable for the alleged wage and hour violations because the staffing agencies that hired her provided workers to perform labor on Costco's premises. The trial court said she failed to raise a genuine issue as to whether her work selling suppliers' products at road show events fell within Costco's "usual course of business" and dismissed her claims before trial.

The plaintiff appealed.

The appellate court noted that Costco had presented declarations showing that road shows were discrete events, accounting for no more than 0.5 percent of Costco's warehouse sales in California. In addition, the road shows operated through a different economic model than Costco's other lines of business. While most Costco products are purchased in bulk and resold to customers, road show merchandise is sold on consignment by sales representatives engaged by the supplier, the court explained.  

In response to Costco's declarations, the plaintiff offered only the assertion that Costco's usual course of business is "demonstrating and selling merchandise to Costco customers" and evidence of other similar lawsuits brought against Costco. She presented no evidence to dispute Costco's factual assertions or to suggest that road shows were sufficiently similar to Costco's other selling activities to fall within its usual course of business, the court said.

The plaintiff also claimed that, although she was hired and paid by the staffing agencies, Costco shared their liability for wage and hour violations as a joint employer under a 2010 California Supreme Court Case (Martinez v. Combs, 231 P.3d 259).

That case, the court said, established three alternative definitions for determining whether an entity "employs" an individual. The entity must:

  • "Exercise control" over the individual's "wages, hours or working conditions."
  • "Suffer or permit" the individual to work.
  • "Engage" the individual.

The trial court had concluded that Costco was not the plaintiff's employer under any of these definitions. On appeal, the plaintiff challenged only the trial court's conclusions as to the first two definitions.

First, the appeals court said, the trial court correctly concluded that Costco did not control the plaintiff's wages, hours or working conditions. The record showed that the staffing agencies hired and paid the plaintiff, scheduled her work on particular road shows, set the length of her shifts, trained her, and set her sales targets.

The plaintiff did not contest these facts but pointed to other evidence of Costco's alleged control over her work, such as dress code guidelines, a policy requiring the booth to be staffed at all times and an incident in which a Costco manager told her that she could not leave until the last customer had exited the store.

But, the appeals court said, the plaintiff's evidence consisted entirely of activities in the areas of quality control and contract compliance, and the California Supreme Court held that such activities are insufficient to establish that an entity was a joint employer. The fact that the plaintiff interacted directly with Costco staff without staffing company managers present did not alone establish that Costco controlled her work, the court said.

Second, the appeals court said the trial court correctly concluded that Costco did not "suffer or permit" the plaintiff to work. She argued that Costco employed her under this definition because it could stop her from working by barring her from a Costco warehouse.

However, the appeals court said, the staffing agencies indisputably retained the exclusive contractual power to fire the plaintiff, and her evidence did not raise a triable issue as to whether Costco had the practical authority to fire her.

The plaintiff's claim that Costco knew of and permitted the alleged wage and hour violations also failed because the suffer-or-permit test relates only to responsibility for the fact of employment itself, not responsibility for causing the labor code violations, the court said

Williams v. Costco Wholesale Corp., 9th Cir., No. 20-16455 (Oct. 29, 2021).

Professional Pointer: Employers should note that the issue here was not whether the plaintiff was an employee or an independent contractor, but rather whether Costco was her joint employer along with the staffing agencies that hired her. California's "ABC test," which is used to determine independent contractor status, does not apply to joint employer relationships.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md. 



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