On Jan. 25, 2017, the Fourth Circuit Court of Appeals, which has jurisdiction over North and South Carolina, issued an opinion in a collective action wage and hour case setting forth a six-factor test for determining whether two persons or entities constitute joint employers under the Fair Labor Standards Act (FLSA).  Salinas v. Commercial Interiors Inc., Opinion No. 15-1915.  On the same day, the court also issued another opinion in two consolidated wage and hour cases under the FLSA, applying the six-factor test and reversing the district court’s dismissal of the cases.  Hall v. DirectTV, LLC, Opinion Nos. 15-1857 and 15-1858.  These opinions resolve some uncertainty regarding joint employment determinations under the FLSA that had been created by the varying tests used by district courts within the Fourth Circuit and set forth a broader, more expansive approach to joint employment determinations under the FLSA than under Title VII.  A discussion of the Fourth Circuit’s joint employment test under Title VII can be found here.

Background of Salinas Case

Mario Salinas was a drywall installer for J.I. General Contractors, a drywall installation subcontractor owned by Juan and Isaias Ramirez, where he worked almost exclusively on projects for Commercial Interiors, a general contracting company.  Salinas and his co-workers sued J.I. General Contractors, Commercial Interiors, and the Ramirez brothers for wage and hour violations under the FLSA, claiming that Commercial Interiors and J.I. jointly employed them.  The district court granted summary judgment to Commercial Interiors, holding that the company did not jointly employ the plaintiffs because J.I. and Commercial Interiors entered into a “traditionally  . . . recognized,” legitimate contractor-subcontractor relationship and “did not intend to avoid compliance with the FLSA.”  The plaintiffs appealed, and the Fourth Circuit reversed the district court’s award of summary judgment.

The Six-Factor Joint Employer Test

Disagreeing with the district court, the Fourth Circuit emphasized that the legitimacy of a business relationship between the putative joint employers and the putative joint employers’ good faith is not dispositive of whether the entities constitute joint employers for purposes of the FLSA.  According to the court, 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 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. 

The court highlighted that it had not previously identified specific factors courts should consider in determining whether a joint employment relationship existed, prompting district courts to apply a variety of multi-factor tests.  The court did note, however, that when addressing the first step of the joint employment inquiry above, the proper focus is on the relationship between the putative joint employers.  To that end, it then set forth six specific factors for district courts to consider in determining whether two persons or entities constitute joint employers under the FLSA.  The six factors are as follows:

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.

No one factor is controlling, and the six factors do not constitute an exhaustive list of all potentially relevant considerations.  According to the court, to the extent the facts not captured by these factors “speak to the fundamental threshold question that must be resolved in every joint employment case – whether a purported joint employer shares or codetermines the essential terms and conditions of a worker’s employment” – courts must consider those facts as well. The ultimate determination of joint employment “must be based upon the circumstances of the whole activity.”

The court was not persuaded by Commercial Interiors’ argument that a finding of joint employment would undermine the traditional contractor-subcontractor relationship.  Based upon the facts of the case, the court determined that Commercial Interiors jointly employed the plaintiffs with J.I. for purposes of the FLSA.  Notably, the plaintiffs performed nearly all of their work on jobsites for Commercial Interiors’ benefit; Commercial Interiors provided the tools, materials, and equipment necessary for plaintiffs’ work; and Commercial Interiors actively supervised the plaintiffs’ work on a daily basis.  The company also required the plaintiffs to attend frequent meetings; required them to sign in and out each day; provided branded clothing to J.I. managers to wear; and, on at least one occasion, rented a house near the jobsite for J.I. employees to stay during a project.  The court found that, while it is not necessary to prove a majority of the factors to support a finding of joint employment, nearly all of the factors above supported a finding of joint employment by Commercial Interiors

Key Points for Employers

Joint employment issues continue to present challenges for employers, particularly given the different approaches taken by courts and administrative agencies under different statutes.  The Fourth Circuit’s opinions affirm that it will take a comprehensive approach to joint employment determinations under the FLSA, broadly interpreting and applying the statute.  This approach is consistent with the Administrator’s Interpretation (AI) that the Wage and Hour Division (WHD) of the U.S. Department of Labor issued last year expanding the department’s definition of “joint employment” under the FLSA. A discussion of the AI is found here.

Accordingly, companies should reflect on and assess their relationships with employees of their subcontractors, personnel agencies, independent contractors, and other entities to determine where joint employment liability may lie.  Given the Fourth Circuit’s pronouncement and broad approach, companies should not rely upon traditionally recognized business relationships as sufficient protection from a joint employment claim and may decide to revisit and revise those relationships.