Shell's Control over Gas Station Operations Made It a Joint Employer

A gas station manager could sue Shell Oil for violations of the California Labor Code even though Shell operated its gas stations through contracts with separate companies that ran the day-to-day operations, a California appeals court ruled. Shell's level of control made it a joint employer along with the company that ran the station, the court said.

Shell owned more than 300 gas stations in California, but operations were conducted through a multisite operated (MSO) model. Under the MSO model, Shell entered into a set of nonnegotiable form agreements with each MSO operator, which, in turn, operated the station. The operators leased station convenience stores and car washes and paid monthly rent. The operators' employees performed all work at the station.

The MSO operators were required to use Shell's electronic point-of-sale cash register system, with the proceeds paid directly to Shell, not to the operators. The operators were required to follow detailed terms that were set forth in Shell's manuals and guides. They were also required to provide daily reports to Shell and submit to periodic inspections.

The MSO contract provided detailed instructions for compliance with labor laws, but called for the operators to hire, fire, train, discipline and maintain payroll records for their own employees. The operators did not have discretion to modify the tasks set forth in the MSO contract and manuals, which were performed by their employees.

The plaintiff was a cashier and later a station manager at a Shell station operated by R&M Enterprises. The plaintiff was always paid directly by R&M. He received no employment benefits directly from Shell, and R&M determined whether he was exempt or nonexempt and controlled his compensation and benefits.

The plaintiff was terminated by R&M in December 2008. He subsequently sued R&M and Shell for failure to pay overtime wages and failure to pay premiums for missed breaks.

The trial court ruled that the case was the same as two prior court of appeal cases against Shell, in which Shell was not found to be a joint employer of MSO employees. The case was dismissed before trial, and the plaintiff appealed.

The appellate court reversed, ruling both that this case was factually different from the two prior cases and that the two other appellate courts incorrectly applied established law as to how joint employer status was to be determined.

Legal Standards for Joint Employment

Under a 2010 California Supreme Court case (Martinez v. Combs, 49 Cal.4th 35), employer status for wage and hour purposes is controlled by the Industrial Welfare Commission's wage orders. The applicable wage order defines employment as consisting of three alternatives:

• To exercise control over wages, hours or working conditions, directly or indirectly.
• To "suffer or permit to work."
• To engage.

The "suffer or permit to work" definition of employment, the court noted, is very broad, reaching all individual workers who can reasonably be viewed as working for the employer's business.

The court concluded that Shell both indirectly controlled the station manager's wages and working conditions, and allowed the manager to work at a Shell station, either of which was enough to make Shell the manager's joint employer.

As to control over wages, hours or working conditions, the undisputed facts in the case, the court said, show that Shell provided extremely detailed technical instructions to the MSOs for managing their stations, and deviations from these standards were prohibited. The court noted that the plaintiff was even threatened with termination by a Shell employee for an alleged violation of these standards. Another Shell employee told the plaintiff that she had fired "many" MSO operator managers for violating these policies, according to the record.

As to the "suffer or permit" standard, the fact that Shell could not directly fire the manager was not determinative, the court noted. Under the contracts with the MSO operators, Shell had the practical power to force an MSO operator to terminate any particular employee, the court said.

Medina v. Equilon Enterprises LLC, Calif. Ct. App., No. G058820 (Sept. 10, 2021).

Professional Pointer: The appellate court's ruling in this case differs from other courts' rulings in similar cases. California's appeals courts are divided into six appellate districts based on geography. A decision of the appeals court in one district is not binding on the appellate courts in the other five districts. In the event of conflicting appellate court opinions, the California Supreme Court, the state's highest court, may step in to settle the dispute.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.