Is a Holding Company, or a Parent Corporation, a Proper Defendant in an Employment Action?

In every employment case it is important to name as a defendant the proper employer or employers. Of course, prior to discovery, it is sometimes difficult to ascertain which, out of a myriad of interwoven entities, are the proper defendants.

In the recent case of BBA Aviation v Superior Court (Engen) (190 Cal.App.4th 421) the California Court of Appeals held that an employee simply didn’t set forth enough information to be able to establish jurisdiction over an out-of-state parent corporation. The parent corporation claimed it was merely a holding company, and had nothing to do with the plaintiff’s termination. In accepting this explanation, the Court of Appeals made a wide assortment of factual findings without an appropriate factual record, precipitously closing the door to Mr. Engen’s desire to make sure he named and sued all the correct corporate actors.

Although it is unfortunately too late to do much for Mr. Engen, for the rest of us, here are some cautionary factors to consider when determining whether to sue a parent or holding company:

(1) Make sure you know all the possible corporate entities up and down the chain by inspecting SEC filings with a publicly traded company, filings with the state or counties, documents on the internet, papers in the employee’s possession, pay stubs, W-2 statements and anything else you can get your hands on.
(2) Try to determine who played even the most minute role in the decision to terminate (or other wrongful acts) and what entity or entities employed each of these individuals.
(3) Ask who ratified the decision to terminate (or other wrongful acts) and what entity or entities employed each of these individuals. Include everyone involved in ratification including human resources department employees or legal department employees.
(4) Check out whether the human resources or legal departments are part of a different company, holding company, sister company or parent company. If so, this is excellent evidence that these are joint employers and should be defendants.
(5) Take a look at what role the purported parent or holding company plays in the day-to-day operations of the subsidiary company, and how involved the parent is in the running of the subsidiary.

Ensuring that an employee includes a parent company as a defendant when appropriate can be an important, especially when it comes to addressing claims that a subsidiary doesn’t have sufficient assets, or when determining the net worth of the defendants for purposes of assessing punitive damages. BBA Aviation v Superior Court (Engen) means that an employee needs to do his or her homework early on, to gather appropriate evidence and make sure corporate shell games don’t result in the hiding of one of the appropriate defendants.

Jody LeWitter