Fourth Circuit Introduces New Framework for Joint Employer Liability Under the FLSA

The Fourth Circuit’s recent panel decision in Salinas v. Commercial Interiors, Inc., 848 F.3d 125, 130 (4th Cir. 2017), establishes a new and seemingly far-reaching test for joint employer liability under the Fair Labor Standards Act. The significance of joint employer status is that all joint employers are liable, jointly and severally, for any FLSA wage and hour violations.

The issue in Salinas was whether a general contractor jointly employed drywall installers who were directly employed by a subcontractor. To address this question, other circuits have adopted tests derived from Bonnette v. California Health & Welfare Agency, 704 F.2d 1465, 1467 (9th Cir. 1983). These tests ask whether the employee is economically dependent on the putative joint employer. If so, there is an employment relationship with the putative joint employer. In a recent Administrator’s Interpretation, the Obama-era Department of Labor endorsed this interpretation of joint employment under the FLSA for “vertical” employment relationships, such as that between a general contractor and subcontractor.^[1]

The Fourth Circuit panel rejected that approach. Instead, it explained, the fundamental question 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.” 

To answer that fundamental question, courts should consider six factors:

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 with the other putative joint employer;
5. 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
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.

The Fourth Circuit explained that “one factor alone can serve as the basis for finding that two or more persons or entities are ‘not completely disassociated’” and are therefore joint employers.  If they are joint employers, courts then ask whether the worker is an employee or an independent contractor of the joint entity. 

This “completely disassociated” analysis for joint employment comes from 29 C.F.R. § 791.2(a), a regulation that has been understood to apply to horizontal relationships.^[2] In horizontal relationships, an employee is admittedly employed by two separate entities and the question is whether those entities are sufficiently related such that they should be considered one employer for FLSA purposes. An example is a waiter that works for two separate restaurants operated by the same entity.

The Fourth Circuit’s application of the completely disassociated test to vertical employment relationships produces uncertainty for companies that use subcontractors, third-party management companies or staffing agencies. At least three of the factors the court identifies as relevant—supervision, duration of the relationship between putative joint employers, and control of the premises where work is performed—are typical in vertical employment relationships.

The facts of Salinas were anomalously unfavorable to the general contractor. There, the subcontractor, J.I., worked almost exclusively for the general contractor, Commercial, and took other work only when Commercial had nothing available. Commercial provided the plaintiffs nearly all tools, material and equipment. It required the plaintiffs to sign in on Commercial-labelled time sheets each day, wear Commercial branded hard hats and vests, and tell anyone who asked that they worked for Commercial. Nearly every morning, plaintiffs attended meetings where Commercial employees gave detailed instructions for how to perform the day’s work. Occasionally, the plaintiff’s paycheck came directly from Commercial. And on one occasion, Commercial even directly employed the plaintiffs when J.I. had difficulty enrolling in an insurance program at a job site. 

Together, these facts make it unsurprising that the Fourth Circuit reversed the district court’s grant of summary judgment and conclusion that Commercial did not jointly employ plaintiffs. It remains to be seen, however, how district courts in the Fourth Circuit and future Fourth Circuit panels will apply the completely disassociated test in more ambiguous circumstances. For now businesses should be cognizant of their potential FLSA liability for wage and hour violations of subcontractors and third-party management companies, and should spend the resources necessary to monitor compliance.

For more information regarding joint employment issues or the Salinas decision, please contact a member of Robinson Bradshaw's Employment and Labor Practice Group.

[1] U.S. Dep’t of Labor, Administrator’s Interpretation No. 2016-1, Joint Employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act (Jan. 20, 2016). The Department of Labor's 2015 and 2016 informal guidance on joint employment and independent contractors were withdrawn effective June 7, 2017.

[2] See Id. at 5.