In Santiago Medina v. Equilon Enterprises, LLC, (Santiago) the California Court of Appeals broadened the test for joint-employer status. Joint employers are jointly and severally liable to an employee for wage, hour and safety violations.
The Santiago case involved Equilon Enterprises, LLC, 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 because it determined that the facts were substantively different from the facts in Santiago.
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 that held “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.
In Santiago the 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.” 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.
Departing from prior decisions the Court of Appeal found “[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.”
Employers should be aware of the multitude of factors used to evaluate the risk of being deemed a joint employer of a contractor’s employees. Such 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. Therefore, before entering into to contracts that require an employee to work for more than one employer employers should seek out the counsel of their employment attorneys.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
