Morrison Law Journal


The Morrison Law Journal October 2014 Volume IX, Edition 10 Court Of Appeal Rules That Parent Company May Be Considered To Be An Employer Of Employees Of Corporate Subsidiary Even Though (I) Parent Company Is A Holding Company With No Employees And (II) Parent Company Exercised No Direct Control or Supervision Over Employees Of Corporate Subsidiary By: Edward F. Morriso n, Jr., Esq. Larry A. Schwartz, Esq.
In a published opinion which may have wide ranging impacts, the California Court of Appeal, Second District, in Castaneda v. Ensign Group, Inc. (2014) 229 Cal.App.4th 1015 ("Castaneda Case") recently ruled that an employee which brought a class action lawsuit against the employer's parent company for non-payment of minimum wages and overtime wages had raised triable issues of fact as to whether the employee could be considered to be a direct employee of the corporate parent (in addition to being an employee of his direct employer). In the Castaneda Case, John Castaneda filed a class action on behalf of himself and other certified nursing assistants against the Ensign Group, Inc. ("Ensign Group"), the parent company of his direct employer, Cabrillo Rehabilitation and Care Center ("Cabrillo Rehabilitation"), a nursing facility where he worked. Ensign Group responded to the Complaint and filed a Motion for Summary Judgment arguing that Ensign Group is a holding company that has no employees and is not engaged in the direction, management or control of Cabrillo Rehabilitation or its employees. Ensign Group also argued that Cabrillo Rehabilitation was an independent company with a traditional management structure. Ensign Group admitted that it owned the stock of Cabrillo Rehabilitation which it purchased in 2009. In opposition, Castaneda submitted declarations and discovery suggesting that Ensign Group, in addition to ownership of Cabrillo Rehabilitation, generally oversaw the training, supervision, work requirements, working conditions and employee benefits for the employees of Cabrillo Rehabilitation and pointed out that, in Securities and Exchange Commission 10-K forms, Ensign Group represented that it exercised centralized control over its cluster companies including Cabrillo Rehabilitation. Castaneda also pointed out that Ensign Group and Cabrillo Rehabilitation had the same corporate address in Mission Viejo and certain individuals were executives of both entities. Castaneda also pointed out that disciplinary matters were handled by Ensign Group and that Cabrillo 1 Rehabilitation employees who had a complaint were to execute an Ensign Group Complaint Form. The trial court granted Summary Judgment in favor of Ensign Group and Castaneda appealed. The Court of Appeal reversed the grant of Summary Judgment citing the California Supreme Court decision in Martinez v. Combs (2010) 49 Cal.4th 35 and the California Court of Appeal decision in Guerrero v. Superior Court (2013) 213 Cal.App.4th 912 for the propositions that the definition of employer is to be broadly construed and that an entity that controls a business enterprise may be an employer of the employees of the enterprise even if it did not “directly hire, fire or supervise” the employees of the enterprise. On that basis, the Court of Appeal ruled that there is a triable issue of fact as to whether Ensign Group controlled some of the details of employment of Castaneda. The Court of Appeal also specifically rejected the argument that there was a contract between Ensign Group and Cabrillo Rehabilitation which provided that any facility staff of Cabrillo Rehabilitation were only employees of Cabrillo Rehabilitation. The Court of Appeal also rejected the argument that there could only be one employer where the employee worked under the control of one entity. The Castaneda Case will certainly have impacts for entities which purchase the stock of other companies as the parent company could be considered to be a direct employer of the corporate subsidiary. About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com. Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504 or vandusen@morrisonlawgroup.com. Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter. 2

In a published opinion which may have wide ranging impacts, the California Court of Appeal, Second District, in Castaneda v. Ensign Group, Inc. (2014) 229 Cal.App.4th 1015 ("Castaneda Case") recently ruled that an employee which brought a class action lawsuit against the employer's parent company for non-payment of minimum wages and overtime wages had raised triable issues of fact as to whether the employee could be considered to be a direct employee of the corporate parent (in addition to being an employee of his direct employer).

In the Castaneda Case, John Castaneda filed a class action on behalf of himself and other certified nursing assistants against the Ensign Group, Inc. ("Ensign Group"), the parent company of his direct employer, Cabrillo Rehabilitation and Care Center ("Cabrillo Rehabilitation"), a nursing facility where he worked. Ensign Group responded to the Complaint and filed a Motion for Summary Judgment arguing that Ensign Group is a holding company that has no employees and is not engaged in the direction, management or control of Cabrillo Rehabilitation or its employees. Ensign Group also argued that Cabrillo Rehabilitation was an independent company with a traditional management structure. Ensign Group admitted that it owned the stock of Cabrillo Rehabilitation which it purchased in 2009.

In opposition, Castaneda submitted declarations and discovery suggesting that Ensign Group, in addition to ownership of Cabrillo Rehabilitation, generally oversaw the training, supervision, work requirements, working conditions and employee benefits for the employees of Cabrillo Rehabilitation and pointed out that, in Securities and Exchange Commission 10-K forms, Ensign Group represented that it exercised centralized control over its cluster companies including Cabrillo Rehabilitation. Castaneda also pointed out that Ensign Group and Cabrillo Rehabilitation had the same corporate address in Mission Viejo and certain individuals were executives of both entities. Castaneda also pointed out that disciplinary matters were handled by Ensign Group and that Cabrillo

Rehabilitation employees who had a complaint were to execute an Ensign Group Complaint Form.

The trial court granted Summary Judgment in favor of Ensign Group and Castaneda appealed.

The Court of Appeal reversed the grant of Summary Judgment citing the California Supreme Court decision in Martinez v. Combs (2010) 49 Cal.4th 35 and the California Court of Appeal decision in Guerrero v. Superior Court (2013) 213 Cal.App.4th 912 for the propositions that the definition of employer is to be broadly construed and that an entity that controls a business enterprise may be an employer of the employees of the enterprise even if it did not “directly hire, fire or supervise” the employees of the enterprise. On that basis, the Court of Appeal ruled that there is a triable issue of fact as to whether Ensign Group controlled some of the details of employment of Castaneda. The Court of Appeal also specifically rejected the argument that there was a contract between Ensign Group and Cabrillo Rehabilitation which provided that any facility staff of Cabrillo Rehabilitation were only employees of Cabrillo Rehabilitation. The Court of Appeal also rejected the argument that there could only be one employer where the employee worked under the control of one entity.

The Castaneda Case will certainly have impacts for entities which purchase the stock of other companies as the parent company could be considered to be a direct employer of the corporate subsidiary.

About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.

Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504 or vandusen@morrisonlawgroup.com.

Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter.