In a pair of recent cases, the U.S. Court of Appeals for the 4th Circuit (which hears appeals from the federal courts of Maryland, Virginia, West Virginia, North Carolina and South Carolina) has set forth what will hereafter be the applicable test in those jurisdictions when determining whether two or more entities constitute “joint employers” for purposes of the Fair Labor Standards Act (“FLSA” or “the Act”).
The FLSA, 29 U.S.C. §§ 201, et seq., requires employers covered by the Act to pay their employees a minimum wage and overtime. When applying the Act with regard to the calculation of hours entitling an employee who works for more than one entity to receive overtime, the Department of Labor’s regulations distinguishes between “separate and distinct employment” and “joint employment.” An employee has “separate employment” when the entities for which he or she works “are acting entirely independently of each other and are completely disassociated” with regard to the individual’s employment. 29 C.F.R. § 791.2(a). “Joint employment” is found when the employment by one employer is not “completely disassociated” from employment by the other. Id. This determination is critical in the overtime context, because when an employee is determined to be working for joint employers, all hours worked for both are added together to determine the eligibility for overtime pay under the FLSA.
In Salinas v. Commercial Interiors, Inc,, No. 15-1915 (4th Circuit 2017), the court reviewed the U.S. District Court for the District of Maryland’s determination that the plaintiffs, a group of drywall installers employed by a subcontractor that worked almost exclusively with one prime contractor, Commercial Interiors, Inc. (“CI”), were not jointly employed by the two entities, and thus not entitled to overtime. In Hall v. DIRECTTV, No. 15-1857 (4th Circuit 2017), the 4th Circuit considered an appeal from the same Maryland District Court (and same trial judge), which had dismissed the overtime claims of technicians employed by supposedly independent service providers that were all in DIRECTTV’s “Provider Network.”
In Salinas, the court recognized the inconsistencies among the various courts in determining whether entities were joint employers for purposes of the FLSA, and posited that much of the confusion over the doctrine’s application stems from the 9th Circuit’s holding in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). The Bonnette court decided that a four-factor framework would be useful in deciding whether an entity constituted a joint employer: “whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules, (3) determined the rate and method of payment, and (4) maintained employment records.” 704 F2d at 1469-70. Many other courts subsequently have relied and expanded upon the Bonnette test for purposes of the joint employer analysis. The Salinas court observed that the Bonnette four-factor test derived from the common-law analysis for determining whether an agency relationship exists for purposes of distinguishing an employee from an independent contractor, but the FLSA was intended to expand the meaning of “employee” beyond that traditional agency law determination. Moreover, the court in Salinas took issue with the Bonnette test’s focus on the relationship between the putative joint employer and the worker, as opposed to the relationship between the two putative joint employers, as required by the DOL regulations. The 4th Circuit in Salinas, therefore, concluded that courts should no longer employ the Bonnette test, or tests derived therefrom, in the FLSA context.
Instead, the Salinas Court held that for purposes of the FLSA, two entities are not “completely disassociated” with respect to a worker, and thus are joint employers, 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 entities’ combined influence over the essential terms and conditions of the worker’s employment render the worker an employee as opposed to an independent contractor.” Salinas, at p. 4. The Court then laid out six factors that should be considered in answering the question of joint employment in light of the foregoing two-prong test:
- 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.
When the 4th Circuit applied the joint employment test set forth above to the plaintiffs in the Salinas case, it reversed the trial judge and determined that the defendants were joint employers, and among the reasons were: plaintiffs performed almost all their work on CI job sites; CI provided tools, equipment, and materials to plaintiffs; CI foremen walked the job sites daily; CI required attendance at meetings; CI foremen frequently directed plaintiffs to redo deficient work; CI provided stickers with CI logos to be applied to hardhats; when plaintiffs’ employer performed time-and-materials work, CI would direct how many employees would perform the work.
Similarly, in Hall, the 4th Circuit applied the test articulated in Salinas and reversed the trial court’s dismissal of plaintiffs’ case for failing to sufficiently allege a joint employer relationship. In particular, the plaintiffs had alleged: DIRECTTV was the principal, and often only, client of the lower-level subcontractors; DIRECTTV’s provider agreements required subcontractors to obtain their work schedules through its centralized system and allowed DIRECTTV to control many aspects of plaintiffs’ work; the subcontractors in the Provider Network and DIRECTTV shared authority to fire workers; DIRECTTV had input in setting plaintiffs’ compensation, by determining whether work was “compensable” or “non-compensable;” and many of the subcontractors implemented DIRECTTV’s hiring and training criteria. Based on those and other allegations, the 4th Circuit found that the Hall plaintiffs had sufficiently alleged a joint employer relationship under the Salinas test.
In conclusion, going forward, contractors and other employers in the jurisdictions that are subject to the rulings in the 4th Circuit should be mindful that they will be subject to the FLSA joint employer overtime regulations if they, in combination with a subcontractor, or other entity, (1) 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 combined influence over the essential terms and conditions of the worker’s employment render the worker an employee as opposed to an independent contractor. Accordingly, businesses that have concerns with regard to the applicability of the FLSA joint employer rule on their relationships with subcontractors or other business affiliates would be well-served to consult with knowledgeable labor and employment counsel, in order to avoid costly litigation of wage and overtime issues.
About the Author: Paul Mengel is counsel with PilieroMazza and leads the Litigation Group. He can be reached at [email protected].