Authored by Brett Bartlett
Seyfarth Synopsis: The Fourth Circuit Court of Appeals recently set forth a new standard for determining whether two or more businesses may be held responsible as joint employers for overtime pay due to a single worker because they are joint employers. Although more expansive than other courts’ standards — and even more so than former Wage and Hour Administrator David Weil’s standard pronounced in his 2016 Administrator’s Interpretation on joint employment — businesses following best practices to avoid joint employment liability under the FLSA should remain insulated from responsibility to pay for overtime worked by another business’s employees.
Employers have no doubt been paying close attention to the future of the joint employer doctrine, which was a focus of change and expansion for DOL leadership during the Obama administration. With a new administration in place, many have speculated as to the doctrine’s narrowing and possible demise.
The Fourth Circuit’s recent decision in Salinas v. J.I. General Contractors, Inc., reminds us of Mark Twain’s famous line: “The reports of my death are greatly exaggerated.” The decision embodies what is perhaps the most aggressive interpretation of joint employment yet to grace the hallowed halls of FLSA jurisprudence. Joint liability under the FLSA for unpaid wages is alive and kicking.
In Salinas, the plaintiffs worked for a subcontractor that did work almost exclusively for the co-defendant contractor, which they alleged to be jointly responsible for unpaid overtime under the FLSA. The subcontractor was generally responsible for hiring and firing the plaintiffs; although the contractor threatened a plaintiff with termination for substandard work and actually hired several of the plaintiffs when it needed them on the payroll for insurance policy purposes. The plaintiffs received paychecks directly from the contractor on a few occasions.
That’s not all. The contractor played a role in setting the plaintiffs’ daily and weekly work schedules, decided their start and end times at their worksites, assigned them additional unscheduled hours, and decided where they would work. The plaintiffs signed timesheets marked with the contractor’s name. They wore hardhats and vests bearing the contractor’s logo. Their supervisors wore contractor-branded sweatshirts. They used the contractor’s tools and equipment to do their work (the subcontractor, which was their direct employer, didn’t provide any tools for them to use); and they did their work under supervision and direction of the contractor’s foremen. The plaintiffs were even instructed to tell anyone who asked that they worked for the contractor.
Somewhat remarkably, the trial court concluded that the alleged joint employers were not jointly responsible for the FLSA violations proved in the case. The Fourth Circuit reversed.
In reversing the lower court’s judgment, the Fourth Circuit articulated and applied a new joint employment test that, based on a facial reading alone, has the potential to force federal courts within that Circuit to conclude that a joint employment relationship exists in almost any case where two or more businesses derive the benefit of work done by an employee of one of them.
Under the rule of Salinas, a court must determine whether alleged joint employers are not “completely disassociated” with respect to the employment of a particular employee. If they are not completely disassociated, then they are joint employers. And this, according to the Fourth Circuit judges, is something that must be considered in a manner “[c]onsistent with the FLSA’s ‘remedial and humanitarian’ purpose,” according to which “Congress adopted definitions of ‘employ,’ ‘employee,’ and ‘employer’ that brought a broad swath of workers within the statute’s protection.”
Fortunately, the court did not stop there, with a standard that might birth joint employment liability from any relationship between two or more businesses. It went on to provide some guidance for determining whether alleged joint employers are in fact completely disassociated. It set forth a non-exhaustive list of six factors to consider (which, in fairness, are fairly reminiscent of factors considered under other tests for joint employer liability that predate Salinas). It provided that courts should consider:
- Whether, formally or as a matter of practice, the alleged 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 alleged 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 alleged joint employers;
- Whether, through shared management or a direct or indirect ownership interest, one alleged joint employer controls, is controlled by, or is under common control with the other alleged joint employer;
- Whether the work is performed on a premises owned or controlled by one or more of the alleged joint employers, independently or in connection with one another; and
- Whether, formally or as a matter of practice, the alleged 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.
So what should employers do with all this?
Although the court in Salinas defines joint employment broadly and differently than other courts in a technical sense, from a practical perspective the ruling should not cause employers to change radically the way they do business in the Fourth Circuit or elsewhere.
We have always cautioned that businesses should take care to insulate employees from circumstances that might lead to a conclusion of joint employment liability. For instance, care should be taken to avoid one business from assigning and overseeing work of another’s; shared employee scenarios should be limited when possible; workers should not wear uniforms of businesses that don’t employ them; and breaks in service do matter (a three-year assignment is not a temporary one). Where a joint employment determination might not be actually and completely avoidable, indemnification and other protective provisions should be used to mitigate exposure among parties that could be determined joint employers.
Finally, for employers operating in the Fourth Circuit, it would be worthwhile to assess those scenarios in which their operations rely on work performed by workers traditionally viewed as another business’s employees or independent contractors. Under Salinas, the lines of FLSA liability have become blurrier in the Fourth Circuit especially. An assessment may provide clarity and a better ability to mitigate any heightened risks that this aggressive ruling creates.