The California joint employer test comes from the state Supreme Court’s decision in Martinez v. Combs, which reads the Industrial Welfare Commission Wage Orders as offering three independent definitions of “to employ.”1Justia Law. Martinez v. Combs A business is a joint employer if it satisfies any one of them: exercising control over wages, hours, or working conditions; suffering or permitting the work; or engaging the worker under common law principles. Meeting a single prong is enough, and the consequence is real: both entities become fully liable for wage and hour obligations owed to the worker, regardless of which one signs the paycheck.
The Three Prongs of Martinez v. Combs
The IWC Wage Orders define “employ” as “to engage, suffer, or permit to work.”2Division of Industrial Relations. IWC Wage Order No. 5 – Public Housekeeping Industry Martinez read that phrase as three separate tests rather than one combined standard.1Justia Law. Martinez v. Combs
Control Over Wages, Hours, or Working Conditions
The first prong asks whether the entity exercises control over the worker’s wages, hours, or working conditions, either directly or indirectly.1Justia Law. Martinez v. Combs The control does not have to be hands-on or daily. A company that dictates pay rates to a staffing agency, sets shift schedules, or imposes specific workplace rules can satisfy this prong even when the staffing agency handles direct supervision. Contractual rights to control the work count as evidence of indirect control even if the company rarely uses them. Courts focus on who actually holds the authority to shape working conditions, not on what the contract calls the arrangement.
Suffer or Permit to Work
The second prong reaches any entity that knows work is being performed, has the power to prevent it, and allows it to continue. This is the broadest of the three because it requires no actual control. Benefit, knowledge, and the power to stop the work are enough.
The “suffer or permit” language itself is not unique to California. The federal Fair Labor Standards Act uses nearly identical phrasing.3Office of the Law Revision Counsel. 29 U.S. Code 203 – Definitions What distinguishes California is that Martinez made suffer-or-permit a standalone route to joint employer status under the wage orders, independent of any control or common law analysis.
Engaging the Worker Under Common Law
The third prong applies the traditional common law employment test: does the entity have the right to control the manner and means by which the worker accomplishes the job? It is the narrowest of the three and resembles the test many other states use as their only standard. Under Martinez, it is simply one of three ways in.1Justia Law. Martinez v. Combs
What Courts Actually Look At
The prongs are legal categories. In practice, courts work through a factual checklist to decide whether any of them is satisfied. The factors that come up repeatedly track the indicators identified in Bonnette v. California Health and Welfare Agency:4Justia Law. Bonnette v. California Health and Welfare Agency, 525 F. Supp. 128
- Hiring and firing authority: which entity decides who gets the job and who loses it
- Schedule control: who sets daily work hours, shifts, and days off
- Pay decisions: who determines the rate and method of payment
- Supervision: who directs how the work gets done on a daily basis
- Record keeping: who maintains employment records, timekeeping, and payroll data
No single factor is decisive. A company that controls only one or two of these elements can still be a joint employer, particularly under the first prong, if the control it exercises shapes the worker’s core employment experience. California courts consistently prioritize the real economic relationship over the labels in the contract. A staffing agreement that names one entity as “sole employer” provides no cover when the other entity is setting schedules, approving timecards, or dictating pay.
Section 2810.3: Automatic Shared Liability for Staffing Arrangements
For businesses that use staffing agencies or labor contractors, California has a separate statute that skips the Martinez analysis altogether. Labor Code Section 2810.3 makes a client employer automatically share civil liability with any labor contractor that supplies workers for the client’s usual course of business.5California Legislative Information. California Labor Code LAB 2810.3 The shared liability covers two specific areas:
- Payment of wages: if the staffing agency fails to pay workers correctly, the client employer is equally on the hook
- Workers’ compensation: if the staffing agency fails to secure valid coverage, the client shares that liability
Section 2810.3 also prevents a client employer from shifting its Cal/OSHA workplace safety obligations to the labor contractor.5California Legislative Information. California Labor Code LAB 2810.3
There are built-in exemptions. The statute does not apply to businesses with a total workforce of fewer than 25 workers, businesses using five or fewer supplied workers at any given time, or government entities.5California Legislative Information. California Labor Code LAB 2810.3 Before suing a client employer under this section, a worker must give the client at least 30 days’ written notice of the alleged violations.
What Liability Attaches Once Joint Employment Is Found
When two entities qualify as joint employers, both become liable for the full range of California wage and hour obligations. The worker can pursue either or both for the complete amount of damages.
Wage and Hour Recovery
Joint employers share responsibility for minimum wage, overtime, and meal and rest break compliance. Under Labor Code Section 1194, any employee receiving less than the legal minimum wage or overtime compensation can recover the full unpaid balance, plus interest and attorney’s fees, from any entity that qualifies as an employer.6California Legislative Information. California Labor Code 1194 That right cannot be waived by contract.
PAGA Penalties
Joint employers also face exposure under the Private Attorneys General Act, which lets employees sue on behalf of the state for Labor Code violations. Penalties apply per employee, per pay period. Following the 2024 PAGA reforms, 65% of recovered penalties go to the Labor and Workforce Development Agency and 35% goes to affected workers. Employers who can show they were already taking reasonable compliance steps before receiving a PAGA notice may reduce maximum penalty exposure to 15% of the amount originally sought.7Labor and Workforce Development Agency. Private Attorneys General Act (PAGA) Frequently Asked Questions
Personal Liability for Owners and Managers
Joint employer liability is not limited to business entities. Under Labor Code Section 558.1, any owner, director, officer, or managing agent who causes wage and hour violations can be held personally liable as an employer.8California Legislative Information. California Labor Code LAB 558.1 The statute explicitly states it does not limit the broader definition of employer under existing law, so it works alongside the Martinez framework rather than replacing it.
Employment Taxes and Workers’ Compensation
Joint employers share responsibility for proper withholding and payment of employment taxes. The IRS treats the common law employer as ultimately responsible for these obligations even when payroll functions are outsourced to a staffing company or professional employer organization.9Internal Revenue Service. Third Party Payer Arrangements – Professional Employer Organizations Both entities also share the obligation to provide workers’ compensation coverage.
Where Franchise Relationships Fit
Franchising is where courts have actually drawn some limits on the Martinez test. California courts have generally found that a franchisor’s brand standards and operational manuals alone do not make it a joint employer of the franchisee’s workers. In Patterson v. Domino’s Pizza (2014), the California Court of Appeal held that it is the franchisee who hires and fires store employees and regulates day-to-day workplace behavior, even when the franchisor imposes a comprehensive operating system. The court distinguished protecting brand consistency from controlling employment terms.
The court reached a similar result in Salazar v. McDonald’s Corp., finding that McDonald’s operating standards protected brand identity but did not extend to hiring, firing, or personnel decisions. The line from these cases: uniform procedures, quality standards, and branding compliance do not automatically create joint employment. A franchisor that starts setting wage rates, mandating specific schedules, or making termination decisions for a franchisee’s workers moves back into first-prong territory.
Where the Test Does Not Reach
The expansive Martinez framework applies specifically to wage and hour claims under the IWC Wage Orders and the Labor Code. It does not govern every employment claim a worker might bring.
For discrimination and harassment claims under the Fair Employment and Housing Act, California courts apply a narrower common law test focused on the right to control the manner and means of the work. An entity that qualifies as a joint employer for overtime purposes may not qualify for a harassment claim arising from the same workplace.
Cal/OSHA runs its own framework. Under its dual-employer inspection policy, both the company that supplies a worker and the company that uses the worker are potentially liable for safety violations at the worksite.10Division of Occupational Safety and Health. California Policy and Procedures Manual P and PC C-1D – Dual-Employer Inspections The supplying employer typically handles payroll, workers’ compensation insurance, and hiring authority. The using employer controls the physical work environment. Both can be cited for violations affecting the same worker.
Reducing Joint Employer Exposure
Businesses that use staffing agencies, contractors, or franchise models in California face a difficult balancing act, because the Martinez test is broad enough that routine business oversight can cross the line. A few principles come up repeatedly in the case law.
Keep employment decisions where they belong. The more a client company involves itself in hiring, firing, scheduling, or pay decisions for a staffing agency’s workers, the stronger the joint employer argument becomes. Audit the actual relationship, not the contract. California courts have repeatedly said the economic reality controls, not the paperwork, and a “sole employer” clause offers no protection when the client is setting schedules and approving timecards. Businesses that use labor contractors and have 25 or more total workers should assume Section 2810.3’s automatic shared liability applies and budget accordingly for potential wage and workers’ compensation exposure.
For franchise systems, the line from Patterson and Salazar holds: brand standards and operational manuals do not equal employment control. A franchisor that begins making staffing recommendations, mandating specific wage rates, or requiring use of its own scheduling software is walking into first-prong territory and losing the protection those cases offer.