Employers in several states are facing a new definition of “joint employment” under federal wage and hour law. The 4th U.S. Circuit Court of Appeals has adopted a broad test for determining whether two employers are jointly liable for back pay and damages in those claims, making it easier for workers to show a joint employment relationship.
Other courts have interpreted the Fair Labor Standards Act (FLSA) too narrowly, the 4th Circuit said. Instead, “because the Act is remedial and humanitarian in purpose, it should be broadly interpreted and applied to effectuate its goals,” the court said, citing its own precedent, in Salinas v. Commercial Interiors, Inc., No. 15-1915 (Jan. 25, 2017).
To that end, the court created a new test for these relationships—one that will make it more difficult for employers to maintain such relationships in the future, according to Kevin McCormick, a partner at Whiteford, Taylor & Preston and an editor of the Maryland Employment Law Letter.
The ruling applies in Maryland, North Carolina, South Carolina, Virginia, and West Virginia.
Joint employment has been a hot topic recently, with the U.S. Department of Labor (DOL) issuing a new Administrator’s Interpretation clarifying the department’s stance on the subject early last year.
Obama’s DOL already had been targeting what it called “fissured workplaces” and, in announcing the clarification, the DOL promised that joint employment would remain an enforcement priority. The efforts were aimed at employers that share employees or use third-party management companies, independent contractors, and staffing agencies.
The department takes the position that joint employment exists when: an employee has two or more separate but related or associated employers; or one employer provides labor to another employer and the workers are economically dependent on both employers. An FLSA regulation provides guidance regarding the first scenario and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) regulation provides guidance on the second.
The DOL issued the new interpretation to clarify that, in its view, both types of joint employment can exist under either law.
Appeals courts have had difficulty developing a coherent test for these relationships, the Salinas court said, which has resulted in “numerous multifactor balancing tests, none of which has achieved consensus support.”
The Salinas Case
In Salinas, the 4th Circuit considered an appeal from a group of drywall installers who had sued two companies alleging that both were liable for the same FLSA violations.
J.I. General Contractors directly employed the installers but they almost exclusively performed work for Commercial Interiors, Inc. A district court determined that the companies were merely engaged in a traditional contractor-subcontractor relationship; the employees appealed.
On appeal, the 4th Circuit considered its sister circuits’ tests for joint employment but chose instead to develop its own two-step framework. Under this new test, courts must first determine whether the defendant and one or more additional entities shared or agreed to allocate responsibility for, or otherwise codetermined the key terms and conditions of the plaintiff’s work, McCormick explained.
To make this decision, the 4th Circuit adopted six nonexhaustive factors that must be considered:
- 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.
And then, if it is established that there is “one” employment, courts are directed to make a second determination: whether the plaintiffs were employees, as opposed to independent contractors, McCormick explained.
To answer that question, courts are instructed to use the 4th Circuit’s existing “economic realities” test which considers, among other things, how much control the employer has over the individual’s work; the worker’s opportunity for profit or loss; and the permanence of the relationship.
Applying the Test
Applying those factors in Salinas, the 4th Circuit determined that Commercial Interiors was a joint employer. The company had, on occasion, threatened workers with termination and paid their paychecks, the court found. It also helped with the workers’ scheduling and worksite assignments, maintained their timesheets, held mandatory meetings, and provided requisite tools and safety gear. The installers also wore hats and vests bearing Commercial’s logo.
Therefore, Commercial and J.I. shared authority over and codetermined the key terms and conditions of the installers’ employment, the court concluded, finding that they both could be liable for FLSA violations.
That same day, the court applied its new test to another case, finding in Hall v. DirectTV, LLC, No. 15-1857, 1858 (Jan. 25, 2017) that a group of satellite television technicians were jointly employed by DirectTV and DirectSat.
At the very least, the 4th Circuit has provided a helpful template for employers to evaluate any independent contractor or joint employment relationships they may have in the workplace, McCormick said.
But this new standard will definitely make it more difficult for employers in the affected states to argue that workers are independent contractors, rather than employees of a joint enterprise, he added. “To be sure, the court has adopted a much broader interpretation of these relationships, that will undoubtedly make it much more difficult to maintain an independent contractor relationship in the future.”
And for multi-state employers trying to comply with different tests in other circuits, relief from this split may not come any time soon. McCormick said he doubts the U.S. Supreme Court would agree to hear this case, much less reverse it. And even if the DOL wanted to establish a national test, it would be very difficult for it to do so in the near term, he said. “At a minimum, [the] DOL would have to revise its regulations or seek to amend the FLSA to reverse these decisions.”
Kate McGovern Tornone is an editor at BLR. She has almost 10 years’ experience covering a variety of employment law topics and currently writes for HR Daily Advisor and HR.BLR.com. Before coming to BLR, she served as editor of Thompson Information Services’ ADA and FLSA publications, co-authored the Guide to the ADA Amendments Act, and published several special reports. She graduated from The Catholic University of America in Washington, D.C., with a B.A. in media studies.