Rarely does a court articulate a legal position so clearly that it can’t be stated any plainer. Such is the case in Castaneda v. The Ensign Group, Inc.:

“A corporation with no employees owns a corporation with employees. If the corporation with no employees exercises some control over the corporation with employees, it also may be the employer of the employees of the corporation it owns.”

In this recent California case, an employee who was supposedly working for Cabrillo Rehab and Care Center brought a class action lawsuit against its holding company, Ensign, for unpaid minimum and overtime wages. How could he do that? Well, California law offers three ways that a company can be considered an employer: (1) exercise control over the wages, hour or working conditions, OR (2) suffer or permit persons to work, OR (3) engage and create a common law employment relationship.

Ensign claimed that it did not meet any of those definitions of employer and filed a motion to dispose of the case completely on the grounds that Ensign has no employees at all and does not manage or control Cabrillo’s employees. The evidence, however, showed otherwise. The evidence revealed, for example, that the two companies share a corporate address, that Ensign recruits employees that Cabrillo then hires, that Ensign and Cabrillo share corporate officers, that Ensign provides Cabrillo with HR services, that Ensign’s logo is on Cabrillo’s computers, and on and on. Even the fact that the employee bringing the lawsuit believed Ensign was his actual employer was a relevant factor, according to the court.

In light of this evidence, Ensign was not permitted to avoid the lawsuit and now has to defend itself both on the issue of whether it was the actual employer and whether it failed to properly pay the plaintiff and the class of employees he represents. Good luck with that.

Now, are we saying that all holding companies will be found to be joint employers with their subsidiaries? Of course not. However, it is important to remember that they can be, unless express actions are taken to avoid it. Talk to an experienced employment attorney and document the relationship correctly.