FOURTH CIRCUIT ASSISTS IN ANSWERING THE QUESTION: “IS OUR COMPANY A JOINT EMPLOYER?”

By Leslie Lasher

I get a lot of questions surrounding joint employment, including questions surrounding relationships with staffing companies, sub-contractors, holding companies, and the like.  While the answer is still not 100 percent clear, a recent decision issued by the Fourth Circuit Court of Appeals, Salinas v Commercial Interiors, sets forth a six-factor test for determining whether two entities constitute joint employers under the federal Fair Labor Standards Act (FLSA).  For several years, the Fourth Circuit (North Carolina included), has operated with a certain amount of confusion due to different joint employer tests being applied in different District Courts.  The Salinas case, however, provides a basic framework to start answering the question:  is our company a joint employer?

The Salinas case involves a drywall installer for a subcontractor that worked almost exclusively for one contractor.  Mr. Salinas, as well as some of his co-workers, filed suit against both the drywall subcontractor, and the contractor. In the case, the workers alleged they were jointly employed by both companies such that both companies should be held liable for overtime violations.

The Fourth Circuit Court of Appeals’ set forth its basic stance on this issue, which is that “joint employment exists when (1) two or more persons or entities share, agree to allocate responsibility for, or otherwise codetermine—formally or informally, directly or indirectly—the essential terms and conditions of a worker’s employment and (2) the two or more persons’ or entities’ combined influence over the terms and conditions of the worker’s employment render the worker an employee as opposed to an independent contractor.”   In order to answer the first question, the Court identified six factors to consider:

  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 of the other putative joint employer;
  5. Whether the work is performed on 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.

In the Salinas case, it was not disputed that the workers were employees of the subcontractor, so the Court did not focus on that portion of the test.  Ultimately, in applying these factors, the Court found that the companies were joint employers, and primarily highlighted that the workers (and the subcontractor), were doing work almost solely for the benefit of the contractor.  Also, the workers were required to attend meetings held by the contractor, used tools and materials provided by the contractor, and were even required to wear clothing provided and branded by the contractor. While the Court found no basis to believe that either company was attempting to evade FLSA requirements, the Court noted that the line of separation between the subcontractor and the contractor were blurred, such that they were not “completely disassociated,” and thus, created a joint employment situation for purpose of the FLSA.

In light of the Fourth Circuit’s ruling, companies are advised to revisit their relationships or oversight of contractors, sub-contractors, operating companies, and staffing companies, especially those that they routinely outsource certain business functions to or with whom they conduct a high volume of business. In taking a look at these relationships, companies should review the six-factor test to consider whether it would be a joint employer of another company’s employees, and should consider contract provisions and operational procedures to minimize potential liability.

At the Forrest Firm, we are proactive in helping our clients stay in compliance with federal laws like FLSA. To achieve this proactive stance, we conduct, in conjunction with client management teams an HR/Employment Audit, where we carefully take a look at each aspect of compliance employment law, from wage and hour considerations to employee handbooks. Contact me at the firm today to schedule an appointment.