While reversing summary judgment in favor of a holding company, in Castaneda v. The Ensign Group B249119 (Cal. Ct. App. Sep. 15, 2014), the California Court of Appeal held that a “corporation with no employees [that] exercises some control over [a] corporation with employees,  may be the employer of the employees of the corporation it owns.” In doing so, the Court found that there were triable issues of material fact whether the holding company that alleged it had no employees, The Ensign Group, Inc., was the plaintiff’s employer.
The plaintiff, Castaneda, brought a wage and hour class action against Ensign, Ensign Facility Services, Inc., Cabrillo Rehabilitation and Care Center, and Touchstone Care, Inc. alleging “unpaid minimum and overtime wages.” Castaneda asserted that Ensign was the alter-ego of the company where he worked, Cabrillo, and therefore should also be held liable for the alleged wage and hour violations.
Ensign asserted that it was only “a holding company that has no employees and is not engaged in the direction, management or control of Cabrillo or its employees.” However, at the same time, Ensign admitted that it owns all of Cabrillo’s stock.
Under California law, the broad definition of employer includes one “who employs or exercises control over the wages, hours, or working conditions” of an individual. Further, multiple entities may be employers where they “control different aspects of the employment relationship,” and an entity that controls another may be an employer even if it did not “directly hire, fire or supervise” the employees.
Plaintiff presented evidence that Ensign owned other “cluster” companies that exercised control over Cabrillo’s operations. Additionally, evidence suggested that Ensign set patient care and workplace policies, provided equipment and computer systems, including employee timekeeping systems, and evaluated Cabrillo’s information management and technology. There was also evidence that Cabrillo was required to show new hires Ensign “policy and training videos,” and that Ensign handled employee discipline. Cabrillo employees also received their paychecks from “Ensign Facility Services, Inc.,” accessed employee benefits information through the “Ensign Benefits Call Center” and “Ensign HR e-Center,” were given “@ensigngroup.net” email addresses, and the employee handbooks were given by Ensign. The Court also took notice that, while Ensign argued that it had “no employees,” Ensign distributed a brochure stating that one of its “core values” was to “reward and support our employees who treat this facility as if they owned it,” and Ensign flags were displayed in the facility.
As a result, the Court found triable issues of fact regarding Ensign’s role in the employment relationship and reversed summary judgment.
This case reinforces the need for companies to be cautions in maintaining separate, distinct, and independent corporate structures in order to maintain their corporate liability shields and avoid joint employer liability in employment cases, even if the entities are merely holding companies with no direct employees.