So Whose Employee Are You Anyway?
With little if any fanfare, the U.S. Court of Appeals for the Fourth Circuit recently established a new legal “test” that will impact federal wage & hour and likely other Department of Labor (DOL) obligations in North Carolina and other states within its jurisdiction. The test is for when two business entities should be considered “joint employers” of the same employee, at least for minimum wage and overtime purposes of the Fair Labor Standards Act (FLSA) – and its primary effect will likely be most evident in contractor-subcontractor and temporary help services arrangements.
In Mario Salinas v. Commercial Interiors, Inc., the Fourth Circuit reversed a lower federal district court in Maryland which had granted a pre-trial summary judgment motion to the defendant contractor and led to the case being dismissed. However, due to the reversal, the contractor was now liable for wages, including overtime wages, of the defendant subcontractor’s employees due to being a “joint employer”, as the subcontractor had since gone out of business leaving a large number of workers unpaid for work performed.
The case was decided on January 25, 2017, and essentially began by noting a number of facts that demonstrated the contractor’s direction and control of the subcontractor’s employees. Those facts at least included daily supervision by the contractor, regular required meetings in which the subcontractor’s employees were provided instructions on the projects they needed to complete and the methods for doing so, and the contractor’s ownership and providing of virtually all the tools, equipment and material needed for the employees to complete their tasks.
The Fourth Circuit then discussed how “the joint employment doctrine: (1) treats a worker’s employment by joint employers as ‘one employment’ for purposes of determining compliance with the FLSA’s wage and hour requirements and (2) holds joint employers jointly and severally liable for any violations of the FLSA.” The Court then provided six factors that will now control the joint employer determination, none of which are all-controlling or all-inclusive:
“(1) 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;
(2) 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;
(3) The degree of permanency and duration of the relationship between the putative joint employers;
(4) 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;
(5) 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
(6) 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.”
The Court further emphasized that since these six factors are not exhaustive, additional facts may also apply to any joint employer determination.
So, in what situations can employers expect this new test to be applied? In answering that question, the Court started with the DOL’s regulations, which draw a distinction between “separate” or “entirely independent” employment versus “joint” employment (when “two persons or entities are ‘not completely disassociated’”) (citing 29 C.F.R. § 791.2(a)). In making that distinction, the Court observed how the DOL also identifies several “nonexclusive scenarios in which joint employment, as opposed to separate employment, generally exists:
(1) Where there is an arrangement between the employers to share the employee’s services, as, for example, to interchange employees; or
(2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or
(3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.”
In short, the new Salinas joint employer test will apply to any business setting in which employees are shared between employers, where one employer acts in the interests of the other in a manner that affects the employee(s) at issue, where there is direction and control by one employer over the other employer’s employees, or where there is enough “common control” by one employer of the other to effectively “associate” the two entities in such a manner that joint employment may occur. Employers that do not want “joint employer” status in any of these settings would be wise to consult with their labor and employment counsel to proactively institute measures that take into account the new “six factors”. And which, if properly implemented in their specific situation, might avoid such a determination if an employee’s “separate” status is ever challenged before the DOL or in court.