In a wage and hour class action, where a corporation with no employees owns a corporation with employees, and the former exercises some control over the latter and its employees, may the former be an “employer” of the latter’s employees?

Posted in: Class Actions, Employment Law, Summary Judgment by Steven Vartabedian on

The answer: yes, as stated in the very first paragraph of Castaneda v. Ensign Group, Inc. (filed 9/15/14) B249119, following rehearing.  There, the Court of Appeal, Second Appellate District, Division Six, reversed the summary judgment that had been granted dismissing Ensign from the action.

Castaneda filed a class action on behalf of himself and other certified nursing assistants against Ensign for alleged unpaid minimum and overtime wages.  He claimed that Ensign was the alter ego of Cabrillo Rehabilitation and Care Center, a nursing facility where he worked.  The trial court found that Ensign was merely a holding company that had no employees and was not engaged in the direction, management or control of Cabrillo and its employees, and thus granted summary judgment in favor of Ensign.

In opposing the summary judgment, Castaneda had submitted declarations and testimony that stated (1) Ensign owned and controlled Cabrillo,  (2)  Ensign controlled the training supervision, work requirements, working conditions, and employee benefits for the Cabrillo employees, and (3) Castaneda was advised at his hiring that he was hired by Cabrillo and Ensign.

In reversing the judgment, the appellate court first confronted Ensign’s contention that Martinez v. Combs (2010) 49 Cal.4th 35 required the trial court to find Cabrillo as the only employer.  There, agricultural employees sued two purchasing companies that had contracts with their employer, a supplier of crops.  Employees of the supplier claimed the purchasing companies benefited from the contracts and exerted financial influence on the supplier.  The state Supreme Court found the purchasing companies were not employers because the undisputed facts showed the supplier alone controlled plaintiffs work conditions including their hours and pay; the companies had not offered employment to any of the workers; the workers did not consider the companies as supervising them nor directing their work; and the companies lacked the authority to prevent the supplier from paying inadequate wages.

The Court of Appeal found ample triable issues of facts as to whether Ensign and Cabrillo were dual employers of the class members based upon the record in Castaneda in distinguishing it from Martinez. Castaneda’s evidence showed Ensign owned all of Cabrillo’s stock; it exercised centralized control over Cabrillo as it did over other companies in this cluster; there was a seamless flow of officers between Ensign and its clusters; Ensign controlled job functions and provided policy and required training videos; Ensign handled employee discipline; and paychecks and employee benefits were issued by Ensign rather than Cabrillo.

As is the normal case in reversals of summary judgments, the ruling does not mean that the successful party has won its case, but it does mean that plaintiffs will be entitled to continue to proceed against Ensign in this class action.  This is important to plaintiffs because I strongly suspect, based on the description of the relationships between the companies defending this matter, Ensign has the deeper pockets.

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