[co-author: Taylor Vernon]

In Curry v. Equilon Enterprises LLC, a California court ruled, and the Court of Appeal affirmed, that a class-action wage and hour lawsuit against Shell Oil could not go forward because the service station manager bringing the suit was not an employee of Shell. The manager was employed by the company that contracted with Shell to operate the station.

Shell granted leases and operating agreements giving operators a rental interest in service station convenience stores and carwashes. Operators kept all profits from the convenience stores and carwashes. Shell paid the operators to run the station fuel facilities.

ARS had a contract with Shell to operate multiple stations. The plaintiff managed two locations. She was hired by an ARS employee, trained by ARS employees, reported to ARS employees, and supervised ARS employees. ARS designated the plaintiff as an exempt employee and set her salary.

The plaintiff brought a class-action suit against ARS and Shell, claiming she and other managers were misclassified as exempt employees, were denied overtime pay and were denied meal and rest breaks. The plaintiff also claimed that ARS and Shell were joint employers.

Definition of Employer

The appellate court noted three alternative definitions of what it means to employ someone:

• To exercise control over wages, hours or working conditions;
• To suffer or permit to work;
• To engage.

The court said the first definition did not apply because Shell did not control the plaintiff's wages, hours or working conditions. ARS was responsible for training the plaintiff. ARS alone determined that she would be exempt from overtime requirements, where and when she would work, and her compensation and health benefits. And ARS controlled what the plaintiff did on a daily basis. The second definition did not apply because Shell had no authority to hire or fire the plaintiff.

As to the third definition, the court said "to engage" referred to the multifactor test used to determine if a worker is an employee or independent contractor. Under this test as well, the plaintiff was not employed by Shell. She was engaged in a distinct occupation. She was not supervised by Shell. Shell did not require a particular skill set for individuals hired by ARS. And Shell did not control her length of employment or compensation.

Read: Curry v. Equilon Enterprises LLC

Soon after this case was decided, the California Supreme Court, in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, announced a new three-part test for determining if an individual is an employee or independent contractor for claims under California's Wage Orders. To show that a worker is an independent contractor, a business must establish each of three factors: (A) the worker is free from control and direction of the hiring entity in performing the work, under the contract for the work and in fact; (B) the work is outside the usual course of the hiring entity's business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business. Failure to establish any one of these factors means a worker will be classified as an employee.

The Supreme Court's decision will impact how many industries do business, and many businesses will need to re-examine their use of independent contractors, and their current agreements, to determine if re-classification is needed.