Castaneda v. The Ensign Group: Parent Co. May Be Liable for Unlawful Labor Policies at Subsidiaries

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A California Court of Appeal issued a published decision holding that a corporate parent could be found liable for its subsidiary’s nonpayment of overtime and minimum wages, where the parent not only wholly owned the subsidiary, but also exercised control over the subsidiary’s operations and employees. Castaneda v. Ensign Group, Inc., No. B249119 (2nd Dist. Div. 6 Sept. 15, 2014) (slip op. available here).

A putative class of certified nursing assistants filed suit against The Ensign Group, a parent company that owns a cluster or portfolio of rehabilitation and nursing care facilities like Cabrillo (where the plaintiff had worked). Ensign contended that because Cabrillo was an independent entity (albeit 100% owned by Ensign) that hired and paid the plaintiff and set his daily work schedule, Ensign could not be considered the plaintiff’s employee, as a matter of law. The trial court agreed, and granting Ensign’s motion for summary judgment and dismissing them from the wage-and-hour action.

The Court of Appeal reversed, ruling that there were triable issues of fact as to whether Ensign was the plaintiff’s employer. Citing the California Supreme Court’s decision in Martinez v. Combs, 49 Cal.4th 35 (2010), and the Court of Appeal decision’s in Guerrero v. Superior Court, 213 Cal.App.4th 912 (2013), the Court explained that an “entity that controls the business enterprise may be an employer even if it did not ‘directly hire, fire or supervise’ the employees.” Slip op. at 3 (citing Guerrero). Holding that “[t]he basis of liability is the owner’s failure to perform the duty of seeing to it that the prohibited condition does not exist,” the court found enough evidence that Ensign exercised structural and managerial control over Cabrillo, and thus could have ensured that its subsidiaries’ practices were in compliance with California labor laws. Slip op. at 4 (citing Martinez, italics added). Among other factors, evidence noted by the court included the fact that Ensign was involved in the recruitment and interviewing of Cabrillo employees, Ensign offered and performed essential, centralized services to its affiliates; there was a seamless flow of corporate officers between Ensign and its subsidiaries; Cabrillo employees were required to use Ensign forms and templates; and Ensign controlled the manner in which employees clocked in and out for shifts.

Although a written agreement stated that “the members of the facility staff are Cabrillo’s ‘own’ employees,” the court chose to ignore such labels when evidence of the entities’ actual conduct establishes a different relationship. Slip op. at 5 (internal citations omitted). The court also considered the facts that Ensign’s logo and signs were posted at the Cabrillo facility, employees at the facility believed they were Ensign employees, employees were assigned “” email addresses, and Ensign controlled their employee benefits. The plaintiff had presented facts that the parent had the ability to correct the allegedly unlawful policy in effect at its wholly-owned subsidiary, and thus the Second Appellate District reversed.