While “joint employment” is not a new legal concept, federal agencies such as the Department of Labor and National Labor Relations Board have aggressively sought to expand its application in recent years.
A joint employment situation typically occurs when an employer uses an independent contractor or vendor for certain services, or relies upon a staffing agency to supply workers. The employer relying upon the vendor probably does not consider the vendor’s employees to be its employees as well. Indeed one of the reasons to use vendors, contractors, or staffing agencies is to delegate to others certain obligations that come with having employees, such as payroll administration, wage and hour compliance, collective bargaining, or workplace safety. But, if an employer is not careful in how it structures and administers its vendor and contractor relationships, it may unwittingly find itself saddled with legal obligations it thought had been assumed by others.
A recent opinion issued by the U.S. Court of Appeals for the Fourth Circuit (Salinas v. Commercial Interiors, Inc. , No. 15-1915, 1/25/2017) highlights this very risk. The Fourth Circuit’s opinion purports to clarify the test for determining when a “joint employer” relationship exists under the Fair Labor Standards Act (FLSA). While this opinion applies only in Maryland, Virginia, and North Carolina, it would not be surprising if other circuits adopted the Fourth Circuit’s new test, which in many cases will make it easier to prove the existence of joint employment.
Summary of the Case
The plaintiffs in Salinas were employees hired by a company known as J.I. General Contractors, Inc. J.I. worked almost exclusively on projects for another contractor, Commercial Interiors. Commercial Interiors offered general contracting and interior finishing services, including drywall installation, carpentry, framing, and hardware installation. The J.I. employees filed a collective action against both J.I. and Commercial, alleging they were not paid wages, including overtime wages. The plaintiffs obtained a judgment for unpaid wages and attorneys’ fees against J.I.. But, the district court dismissed the claim against Commercial, finding Commercial had a legitimate independent contractor relationship with J.I. that was not entered into for the purpose of evading its legal wage and hour obligations.
The Court of Appeals reversed, finding the district court incorrectly ruled in Commercial’s favor on the joint employment question. In a lengthy opinion, the Court of Appeals criticized the trial court for focusing on the legitimacy of the contractual relationship and the good faith of the parties’ intent to comply with the wage and hour laws. But, the Court also found the existing precedent for FLSA joint employment cases, both in the Fourth and other circuits, unsatisfactory and confusing. As such, the Court decided to “set forth our own test for determining whether two persons or entities constitute joint employers for purposes of the FLSA,” guided by the principle that the law “must not be interpreted or applied in a narrow, grudging manner.”
The Court framed the “fundamental threshold question” in these cases as, “whether a purported joint employer shares or co-determines the essential terms and conditions of a worker’s employment.” In answering the question whether joint employment exists, the Court of Appeals said courts should consider the following, non-exhaustive, list of factors:
- Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;
- Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to—directly or indirectly—hire or fire the worker or modify the terms or conditions of the worker’s employment;
- The degree of permanency and duration of the relationship between the putative joint employers;
- Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;
- Whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or in connection with one another; and
- Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll; providing workers’ compensation insurance; paying payroll taxes; or providing the facilities, equipment, tools, or materials necessary to complete the work.
Applying the six factors to the Commercial-J.I. relationship, the Court found the following facts were important in finding that Commercial jointly employed J.I.’s employees:
- The Plaintiffs performed nearly all of their work on Commercial job sites and for Commercial’s benefit;
- Commercial provided the tools, materials, and equipment necessary for Plaintiffs’ work, with Plaintiffs providing only small, handheld tools;
- On at least one occasion, Commercial rented a house near the job site for J.I. employees to stay in during a project;
- Commercial actively supervised Plaintiffs’ work on a daily basis by having foremen walk the job site and check Plaintiffs’ progress;
- Commercial required Plaintiffs to attend frequent meetings regarding their assigned tasks and safety protocols;
- Commercial required Plaintiffs to sign in and out with Commercial foremen upon reporting to and leaving the job site each day;
- Commercial foremen frequently directed Plaintiffs to redo deficient work, communicating problems to J.I. supervisors who translated the information to Plaintiffs
- Commercial foremen told certain Plaintiffs to work additional hours or additional days;
- Commercial communicated its staffing needs to J.I., and J.I. based Plaintiffs’ jobsite assignments on Commercial’s needs;
- When J.I. performed certain “time and materials” work for Commercial and was paid on an hourly, rather than lump-sum, basis, Commercial told J.I. how many of its employees to send to the project and how many hours those employees were permitted to work;
- Commercial provided Plaintiffs with stickers bearing the Commercial logo to wear on their hardhats and vests bearing Commercial logos to don while working on Commercial jobsites;
- I. supervisors instructed Plaintiffs to tell anyone who asked that they worked for Commercial;
- Commercial provided J.I. supervisors with Commercial-branded sweatshirts to wear while working on Commercial projects;
- On at least one occasion, Commercial required J.I. employees to apply for employment with Commercial and directly hired those employees.
It’s typically in the details of doing the job that the relationship get blurred between an employer’s own employees, and those of a contractor or vendor. The company principals sign an agreement that sets forth the relationship, usually with good intentions. But, in the effort to get the project or job done, the administration of the relationship does not comport with what it may say in the written agreement. The following are a few reminders that should help keep the lines between the employer and contractor/vendor more clear:
- Provide clothing or logos for your employee’s, but not the employees of a contractor/vendor;
- Do not provide equipment or tools for the contractor/vendor’s employees;
- You are allowed to exercise quality control over a contractor/vendor’s finished product, but do not instruct a contractor/vendor’s employees about the details of the work;
- Communication about unsatisfactory work should be to a designated liason with the contractor/vendor, not the employees themselves;
- Do not discipline or threaten to terminate a contractor/vendor’s employee; issues of conduct or performance of a particular employee should be addressed with the liason;
- Contractor/vendor employees should comply with general safety protocols of the work site; but, if there are safety protocols unique to the contractor/vendor’s work (e.g., if they use certain chemicals), the contractor/vendor should enforce those rules.
- Do not directly keep track of contractor/vendor employee hours, or direct those employees when to work, or insist they work overtime.
- Train supervisors about these rules;
- Closely following these rules is most important if the employer is the exclusive or nearly exclusive firm that uses the contractor/vendor; even if the contractors has many other customers, the employer should endeavor to follow these practices, but there may be more flexibility.
Image Credit from Google, Creative Commons license, Contractors Plant and Machinery.