In a recent decision by the Fourth Circuit, the Court established a new test for determining whether two entities are “joint employers.” The case arose when employees of a construction subcontractor sought overtime wages from the project’s general contractor. A District Court had previously issued summary judgment in favor of the general contractor, but the Fourth Circuit’s recent opinion reversed—finding the general contractor liable for overtime wages because it “jointly employed” the subcontractor’s employees. The appellate court reasoned that the contractor-subcontractor relationship did not let the general contractor off the hook for liability, since its control over the subcontractor’s workers made it an “employer” under the Fair Labor Standards Act.
The development of a standard for determining “joint employer” status is especially significant because the Fourth Circuit had not previously articulated a test for determining the existence of a joint employment relationship. In its opinion in Mario Salinas et al. v. Commercial Interiors Inc., Case No. 15-01915, the Fourth Circuit articulates the test that will be used to determine whether two entities are “joint” employers as opposed to “separate” employers, as those terms are specified in DOL regulations. The Court acknowledged three scenarios where “joint” employment generally exists among two entities: 1) when they agree to share employees; 2) when one employer acts in the interest of the other employer; or 3) when one employer controls the other employer.
The new test focuses on the relationship between employers and how that informs their relationship with employees. The fundamental question recognized by the Court is whether two or more persons or entities are “not completely disassociated” with respect to a worker such that the persons or entities share, agree to allocate responsibility for, or otherwise codetermine—formally or informally, directly or indirectly—the essential terms and conditions of the worker's employment. In answering this question the Court set forth the following non-exhaustive factors to be considered:
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Whether, formally or as a matter of practice, the two employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;
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Whether, formally or as a matter of practice, the two 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;
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The degree of permanency and duration of the relationship between the two employers;
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Whether, through shared management or a direct or indirect ownership interest, one employer controls, is controlled by, or is under common control with the other employer;
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Whether the work is performed on a premises owned or controlled by one or more of the employers, independently or in connection with one another; and
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Whether, formally or as a matter of practice, the 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 applying its new test, the Court found that the general contractor made up the vast majority the subcontractor’s overall business, noting that the subcontractor worked only for one other general contractor, and did so only when this general contractor did not have work. Although the subcontractor was responsible for the hiring and firing and payment of its employees, supervisors from the general contractor were responsible for collecting timesheets from the subcontractor’s employees, and on one or more occasions had threatened termination to some of the subcontractor’s employees. Employees of the subcontractor had also regularly worn work clothes of the general contractor and used the general contractor’s tools on site.
In light of this new test, employers who subcontract out work should carefully review their relationship with the subcontractor, the terms under which the work is performed, and the extent to which they may directly or indirectly exercise control, direction or supervision over the subcontractor’s employees.
