California Court of Appeal Broadens Test For Joint Employer Liability

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On September 10, 2021, the California Court of Appeal broadened the test for joint employment in California, lowering the bar for what constitutes sufficient control by business over its vendor’s employees’ wages and working conditions and opening these businesses up to potential liability.

The Decision: Santiago Medina vs Equilon Enterprises, LLC

Equilon Enterprises, LLC is a subsidiary of Shell Oil Company that operates as a “Multi-Site Operator” or “MSO” model.  Under the MSO model, Shell entered into nonnegotiable form agreements with “MSO operators” that operated the station.  These agreements required each station to pay monthly rent and have its employees perform all work at the station.  Shell had the right to terminate the contract with notice, and Shell could add or withdraw stations from the operator’s cluster at any time, for any reason.  Shell also had the right to access the operators’ bank accounts to withdraw fuel revenue from the account and deposit revenue from convenience store sales and car washes.

Plaintiff sued the MSO operator and Shell, alleging violations of the Labor Code and arguing that Shell was his joint employer, based upon the level of control Shell exercised over the operations of its gas stations.  The Court distinguished the prior decisions that Shell was not a joint employer in the MSO context in Curry v. Equilon Enterprises, LLC,  23 Cal.App.5th 289 (2018) (Curry) and Henderson v. Equilon Enterprises, LLC, 40 Cal.App.5th 1111 (2019) (Henderson) because it determined that the facts in Curry and Henderson differed meaningfully from the facts in Medina.  

The Court found that Shell was a joint employer, at least for wage and hour purposes, of the employees of the MSO operators that operated Shell’s gas stations.  The Court applied the pre-existing test for joint employment set forth in Martinez v. Combs, 49 Cal.4th 35 (2010): to employ means (1) to exercise control over wages, hours, or working conditions, directly or indirectly, or through an agent or any other person; (2) to “suffer or permit to work”; or (3) to engage. 

The Medina court found Shell exercised “near-complete control over the MSO operators’ finances, day-to-day operations, facilities, and practices” such that it could have stopped employees from “working in their stations through a variety of means.”  For instance, the Court noted the significance of the facts that Shell’s employees told plaintiff they had the power to fire him or to have him fired, Shell had contractually mandated control over the MSO operators’ bank accounts, and Shell had the ability to add or remove individual stations to and from MSO operator clusters at any time, for any reason.

In contrast, the Curry court held that the MSO operator alone controlled plaintiff’s hours and wages and working conditions because it was responsible for hiring, firing, training, disciplining, compensating plaintiff, classified plaintiff as non-exempt or exempt, and determined where she would work, when she would work, what tasks she would perform, and what compensation, health and welfare benefits she should receive.  The Henderson court reached a similar conclusion.  

Departing from the prior decisions in Curry and Henderson, the Court of Appeal found that “[i]f the putative joint employer instead exercises enough control over the intermediary entity to indirectly dictate the wages, hours, or working conditions of the employee, that is a sufficient showing of joint employment.”  

Impact on Employers

Employers should be mindful of the many factors that go into the analysis to evaluate the risk of being deemed a joint employer of a contractor’s employees. That evaluation should include reassessing the provisions of their contracts and need for training employees who interact with a contractor’s workers to remind them of their lack of authority and control over such workers.  A business found to be a joint employer runs a significant risk of liability for costly litigation, including but not limited to defending against what could be financially significant claims of unpaid wages and hefty penalties.  

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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