200 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com In contrast, when multiple entities are alleged to be in a horizontal joint employment relationship, courts in the Ninth Circuit utilize a test that looks at the following three factors: (1) whether “there is an arrangement between the employers to share the employee's services,” (2) whether “one employer is acting directly or indirectly in the interest of the other employer ... in relation to the employee,” or (3) whether “one employer controls, is controlled by, or is under common control with the other employer” and therefore the two “share control” of the employee.964 B. Joint Employer Liability Standards Under California Law California courts employ a three-part “control” test, adopted from an IWC Wage Order definition of the term “employ,” in order to determine whether multiple entities are joint employers.965 Under that test, courts look at whether an alleged joint employer: (1) exercised control over the workers’ wages, hours or working conditions; (2) suffered or permitted them to work; or (3) engaged them, thereby creating a common law employment relationship.966 Recent decisions by California courts show divergent and increasingly expansive applications of the joint employer test. For example, in Curry v. Equilon Enterprises, LLC, 23 Cal. App. 5th 289 (2018), gas station employees filed a wage and hour class action against a gas station operator and its parent company, Shell. The employees argued that Shell was a joint employer because it indirectly controlled the manner and means of their work, by directives in an operating manual that the gas station operator had to follow. The Court of Appeal found that Shell was not liable as a joint employer because, while it exercised control over the gas station operator, it did not control the employees’ wages, hours, or working conditions.967 964 Chao v. A-One Medical Services, Inc., 346 F. 3d 908, 917-918 (9th Cir. 2003). 965 See Martinez v. Combs, 49 Cal. 4th 35, 64 (2010). California courts have also used an “integrated enterprise” test to determine whether entities are liable as a single employer, due to their interrelation of operations, common management, ownership or financial control, and centralized control of labor relations. See Laird v. Capital Cities/ABC, Inc., 68 Cal. App. 4th 727 (1998), overruled on other grounds by Reid v. Google, 50 Cal. 4th 512 (2010). While the test has been used mainly to determine joint employer liability under Title VII and FEHA, see Rhodes v. Sutter Health, 949 F. Supp. 2d 997, 1006 (E.D. Cal. 2013), it has also been used, to a lesser extent, in wage and hour matters. See Huse v. Auburn Honda, 2005 WL 1398521, *3 (E.D. Cal. 2005) (using integrated enterprise test to determine whether a defendant was an employer within the meaning of the California Labor Code); Serrano v. 180 Connect, Inc., 2006 WL 2348888, *2 (N.D. Cal. 2006) (employing the integrated enterprise test in an action involving alleged California Labor Code violations), rev'd on other grounds, 478 F.3d 1018 (9th Cir. 2007). 966 Martinez, supra, 49 Cal. 4th at 72 (finding that seasonal farm workers were not jointly employed by produce merchants who purchased the strawberries they processed, because the farmer alone “hired and fired plaintiffs, trained and supervised them, determined their rate and manner of pay . . . , and set their hours, telling them when and where to report to work and when to take breaks.”). The California Supreme Court has explained that the degree of control exercised over workers in connection with wages, hiring, firing and daily supervision is key in determining, under “traditional common law principles” whether an employment relationship exists. Patterson v. Domino's Pizza, LLC, 60 Cal. 4th 474, 499 (2014) (noting that courts have “emphasized ‘the control exercised by the employer over the employee's performance of employment duties.’”.) Like the “control” test, which was derived from the wage orders, the common law “requires ‘a comprehensive and immediate level of ‘day-to-day’ authority' over matters such as hiring, firing, direction, supervision, and discipline of the employee.” Id. 967 23 Cal. App. 5th at 302-303. See also Henderson v. Equilon Enterprises, LLC, 40 Cal. App. 5th 1111, 1115–1116 (2019) (Rejecting gas station employee’s claim that Shell was his joint employer because of the operational control it exerted over the gas station operator; “The record is undisputed that [the operator] alone set [plaintiff’s] wages, determined which employees would be deemed exempt from overtime regulations, and was solely responsible for [the operator’s] payroll function and compliance with labor laws. [The operator] alone set its meal and rest break policies, enforced its own employee handbook, and determined [plaintiff’s] work schedule and the number of employees who worked at a particular station . . . . In short, while [plaintiff] was required by Shell to perform certain tasks under the MSO Agreement, [the operator] alone dictated how those tasks would be performed by its employees and controlled the day-to-day operations
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