California Court of Appeal Finds that Holding Company that Owns Corporation May be Employer of Corporation's Employees

October 2014

Holding companies should be on the alert. In the recent case of Castaneda v. Ensign Group, Inc.2014 WK 4536995 (September 15, 2014), the Second Appellate District held that a self-described holding company, Ensign, that owned a separate corporation, Cabrillo, may be the employer of Cabrillo's employees. In reversing the trial court's order granting summary judgement in favor of Ensign, the Court of Appeal found that the plaintiff in a class action suit for non-payment of minimum and overime wages provided sufficient evidence to raise a triable issue of fact as to whether Ensign was his employer.

The Court enphasized that "Ensign owns Cabrillo," but fell short of holding that Ensign's mere ownership of Cabrillo was sufficient to establilsh an employment relationship between the plaintiff and Ensign. In addition to Ensign's ownership of Cabrillo, the Court noted the "interwoven structural control and management" between Ensign and Cabrillo, citiing evidence that the companies had overlapping management. The Court also cited evidence, found in Ensign's internal documents and filings with the Securities Exchange Commission, that Ensign exercised control over employee wages, benefits, benefits and discipline, in addition to requiring that the employees use Ensign forms.

Accordingly, the Court found that the plaintiff had provided sufficient evidence to raise a triable issue of fact that Ensign was his employer.

Given the broad implications, Castaneda might well be reviewed by the California Supreme Court. Nevertheless, holding companies could be alerted to Castaneda and take steps to ensure that they do not exercise control over their corporation's employees or they may become the employees' employer, with its attendant liabilities and obligations.