Holding Companies May Be Vicariously Liable For Alleged Wage and Hour Violations
In Castaneda v. The Ensign Group (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.” The Court found that there were triable issues of material fact as to whether the holding company which alleged that it had no employees, was indeed the plaintiff’s “employer” in the context of wage and hour claims.
The case involved a class action seeking “unpaid minimum and overtime wages.” The Defendant (“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 [it’s subsidiary company] or its employees.”
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.
The Plaintiff presented the following evidence: that Ensign owned other “cluster” companies that exercised control over Cabrillo’s operations; 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; that Cabrillo was required to show new hires Ensign “policy and training videos,” and that Ensign handled employee discipline; that 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; that 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.
Watch out “holding companies” — you may be liable for the overtime wages and minimum wages owed by your subsidiary companies!