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Joint Employers Found Jointly Liable For Labor Code Violations
Equilon Enterprises (Shell) owned more than 300 Shell-branded gas stations in California. Shell-operated these stations through its “Multi-Site Operated” or “MSO” model. Shell would enter into non-negotiable agreements with an “MSO operator” who in turn operated the stations. The agreements leased the station’s convenience store and car wash to the operator and required the operator’s employees to perform all of the work at the station, including motor fuel services that were outside the lease. For the fuel services, the operators received a $2,000 monthly fee and a reimbursement amount that Shell unilaterally set.
Typically, these stations were leased as groups in clusters, but Shell had the authority to add or remove individual stations to and from the MSO operator’s cluster at any time. Shell could also terminate the MSO contracts on six months’ notice. MSO operators were required to use Shell’s electronic point of sale cash register system; to follow detailed terms for the operation of Shell’s motor fuel business; to provide daily reports, and to submit to inspections. Shell also controlled the hours of the stations and required operators to grant Shell access to their bank accounts.
The MSO contract called for the operators to hire, fire, train, discipline, and maintain payroll records for their own employees. However, the operators did not have the discretion to modify their employee’s tasks, which were described in the MSO contract and in Shell’s manuals.
Santiago Medina was a cashier and later a station manager at a Shell station that MSO operator R&M Enterprises (R&M), operated. Upon his promotion to the station manager, R&M designated Medina as a salaried employee. Medina worked in excess of eight hours a day and 40 hours a week without overtime pay until a California Division of Labor Standards audit in 2008 prompted his reclassification. During his employment, Medina was paid directly by R&M, but he was trained according to Shell’s manuals. While Medina took direction from R&M supervisors and its owner, he also reported certain issues directly to Shell. In December 2008, R&M terminated Medina’s employment.
After his termination, Medina sued Shell and R&M as “joint employers” on behalf of himself and other similarly-situated employees. Medina asserted causes of action against Shell and R&M for misclassification, failure to pay overtime wages, failure to pay missed break compensation, and violations of California Business and Professions Code Section 17200. After significant litigation on other actions pending against Shell elsewhere in California, the trial court granted Shell summary judgment. Medina appealed.
In California, an entity is an employer or a joint employer if it does any of the following: (1) exercises control over wages, hours, or working conditions, directly or indirectly, or through an agent or any other person; or (2) suffers or permits a person to work; or (3) engages a person. Under the “suffer or permit to work” standard, the entity is liable if it knew of and failed to prevent the work from occurring.
On appeal, the court considered two other decisions–Curry v. Equilon Enterprises, LLC and Henderson v. Equilon Enterprise, LLC–that addressed a similar issue at Shell gas stations. However, the Court of Appeal noted significant differences between these cases. In Medina’s case: Shell employees told Medina they had the power to fire him or have him fired; the flow of payments for fuel went directly to Shell; Shell had power over the MSO operator’s bank account; and Shell could add or remove individual stations to and from the MSO operator’s cluster at any time, for any reason. In light of these differences, the court determined Medina’s case was different from the cases in which the courts determined Shell was not a joint employer.
The court further noted several points of disagreement between its analysis and the Curry and Henderson opinions. First, the court noted it did not agree with the conclusion in Curry and Henderson that Shell did not control the employees’ hours, wages, or working conditions because it controlled only the MSO operator and not the employees. The court pointed to Shell’s extremely detailed technical instructions for managing the stations, and that Shell prohibited deviations from those instructions. Moreover, Shell’s system of unilaterally setting reimbursements for labor costs while mandating hours of operation for the stations had the practical effect of controlling employee wages.
Second, the court disagreed with the Curry and Henderson courts’ conclusion that Shell did not “suffer or permit” the employees to work because Shell lacked the power to directly fire the employees. However, the court noted that the “suffer or permit” test includes entities that lack the power to fire an employee directly. In any event, Shell could have removed employees from a station by removing the station (or all of its stations) from the MSO operator’s cluster.
For these reasons, the court concluded that if an MSO operator is unable to pay its employees, Shell should bear that risk. Thus, the MSO operator and Shell were joint employers and Shell could be liable if the MSO operator was unable to pay an employee’s wages.
Medina v. Equilon Enterprises, LLC (2021) 68 Cal.Rptr.5th 868.
In the joint employment context, the individual is considered an employee of the primary employer but is also found to be an employee of the secondary employer. The consequence is that joint employers are responsible, both individually and jointly, for compliance with wage and hour laws. For private K-12 schools, colleges, and universities there is a risk they may be found to be joint employers of contractors or vendors retained to perform services for them. It is important to analyze the relationship with contractors and vendors fully to determine whether there is a risk that a joint employer relationship could be found, and to have contracts in place expressly stating that the private K-12 school, college, or university is not a joint employer.