Shell Oil Wasn’t Joint Employer of Service Station Manager

By Joanne Deschenaux May 17, 2018
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A class-action wage and hour lawsuit brought against Shell Oil could not go forward because the service station manager bringing the suit was not an employee of the oil company, the California Court of Appeal ruled. Rather, the court said, the manager worked for the company that had contracted with Shell to operate the station.  

Starting in 2003, instead of operating its own service stations, Shell Oil offered leases and operating agreements that gave the operators a rental interest in service stations' convenience stores and carwash facilities. Operators kept all the profit from the convenience stores and carwash facilities, and Shell also paid the operators to run the stations' fuel facilities.

Shell owned the gasoline that was sold to customers, received all the revenue from the fuel sales and unilaterally set the fuel prices. Operators were required to complete daily gasoline price surveys from competing gas stations, submit that information to Shell, and then change the fuel prices as directed by Shell. 

In addition to the daily price surveys, Shell required operators to perform various tasks including:

  • Tracking the amount of fuel stored in Shell's tanks against the amount of fuel sold to customers.
  • Maintaining the carwash.
  • Transmitting reports of fuel sales, credit card data, and convenience store and carwash sales. 

The operators hired and discharged employees, but Shell had the right to request that an operator fire an employee for good cause. 

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

ARS had a contract with Shell to operate approximately 15 gas stations throughout San Diego County. The plaintiff managed two of the stations that ARS operated. She was hired by an ARS employee, reported to ARS employees and was trained by ARS employees. ARS designated the plaintiff as an exempt employee and set her salary.

The plaintiff brought a class-action lawsuit against ARS and Shell, claiming that she and other station managers were misclassified as exempt employees and that the defendants failed to pay the managers overtime and denied them legally required meal and rest breaks. The plaintiff claimed that ARS and Shell were joint employers.

Shell moved for summary judgment, seeking to have the claims against it dismissed before trial. The court granted Shell's motion, and the plaintiff appealed.

Definition of Employer

The appellate court first noted that Industrial Welfare Commission wage order 7-2001, which applies to the plaintiff's employment, has three alternative definitions of what it means to employ someone:

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

As to the first definition, the court found that Shell did not control the plaintiff's wages, hours or working conditions. ARS was responsible for training the plaintiff. ARS alone determined that she would be exempt from overtime requirements, where and when she would work, and the compensation and health benefits she would receive. Furthermore, ARS maintained control over what the plaintiff did on a daily basis.

The court found that the second definition also did not apply because Shell did not have the authority to hire or fire the plaintiff.

As to the third definition, the appellate court said that "to engage," in the context of the wage orders, referred to the multifactor test used in California to determine whether a worker is an employee or an independent contractor. The court then used that test and determined that nearly all the factors supported the conclusion that the plaintiff was not employed by Shell: She was engaged in a distinct occupation, she was not supervised by Shell, Shell did not require a particular skill set for individuals hired by ARS, and Shell did not determine her length of employment or compensation.

The appeals court affirmed the dismissal of claims against Shell, ruling that Shell was not the plaintiff's employer.

Curry v. Equilon Enterprises LLC, Calif. Ct. App., No. E065764 (April 26, 2018).

Professional Pointer: A few days after this case was decided, the California Supreme Court announced a new three-part test for determining whether an individual is an employee or an independent contractor. That new test will likely be used from now on to determine whether a company engaged a worker for purposes of the applicable wage order.  

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

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