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4th Circuit sets new test for joint employer cases

The 4th U.S. Circuit Court of Appeals for the first time has established a test for determining whether two companies were joint employers under the Fair Labor Standards Act.

The court’s test is more worker-friendly than that of other circuits that have set a standard. A worker can meet merely one of six factors named by the court and tag two companies as joint employers.

The variety of approaches, emphasizing different factors, among the federal circuits makes the issue prime for the U.S. Supreme Court, said lawyers on both sides of the case.

A group of drywall installers is suing Commercial Interiors, a contractor, and J.I. General Contractors, a subcontractor, alleging that they willfully failed to pay the workers’ wages, including overtime wages, in violation of the FLSA. The workers argue that they should have been able to total up their hours worked for each company to reach the threshold of 40 hours a week, beyond which they were entitled to one-and-a-half times pay for overtime.

J.I. directly employed the workers, but Commercial exercised a significant deal of control over them. Almost all of J.I.’s business was with Commercial, and Commercial directly supervised the employees and provided them with their tools and helped set daily and weekly schedules. Commercial also retained the workers’ timesheets, and gave them Commercial-branded kit to wear at job sites. Nevertheless, a Maryland district court granted Commercial’s motion for summary judgment after employing its own original multi-factor test focused on whether the companies intended to evade wage and hour laws.

That’s the joint

On appeal, a unanimous 4th Circuit panel reversed, saying that this was the wrong sort of test. The panel found that most circuits that have created tests for deciding whether two companies are joint employers have borrowed from existing tests to distinguish employees from independent contractors. But this is also a flawed analysis, the court said, because it focuses on the relationship between worker and employer, instead of the relationship between the two purported joint employers.

In response, the panel articulated its own rubric, with an eye toward interpreting the FLSA in a broad manner. The panel identified six factors for lower courts to consider, including whether the employers jointly supervise the worker, share power to hire or fire the worker, or share functions such as handling payroll that are ordinarily carried out by employer. Courts should also consider the permanency of the relationship between the employers, whether one employer directly or indirectly controls the other, and whether the work is performed on a premises controlled by one or more of the employers.

Because companies can be found to be joint employers if they are “not completely disassociated,” even a single factor alone can be a basis for finding that joint employment existed, the court said, citing the very expansive definition of “employee” used in the FLSA. If a court determines that two the entities were joint employers, it should only then move onto deciding whether the workers were employees or independent contractors.

“Under the proper test, joint employment exists when 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 the two or more persons’ or entities’ combined influence over the terms and conditions of the worker’s employment render the worker an employee as opposed to an independent contractor,” Judge James Wynn wrote for the court.

A timely ruling, attorney says

In this case, the court found that nearly all of the six factors supported a finding that J.I. and Commercial were joint employers, noting Commercial’s continuous supervision of the work, above and beyond routine quality control, and its authority over the terms and conditions of the workers’ employment.

Commercial argued that a ruling in the workers’ favor would render every general contractor a joint employer of its subcontractor’s employees, but the court said its ruling was limited to determining whether a worker is an employee for the purposes of the FLSA and not necessarily for the purposes of any other law.

Sally Dworak-Fisher of the Public Justice Center in Baltimore represented the employees. Dworak-Fisher said that the 4th Circuit’s analysis will be more favorable to workers than those used in other circuits, which she said are too narrow to properly analyze joint employment claims under the FLSA because they focus on the degree of control the employer holds over the employment relationship.

“I think it’s incredibly significant. Prior to this, the 4th Circuit didn’t really have a clear standard for determining whether two entities could be liable as joint employers, and now the 4th Circuit has really articulated what the standard is and how it should be applied,” Dworak-Fisher said. “Given the sort of fracturing or fissuring of the economy with outsourcing and multi-layered contracting, having an analysis of how to determine joint employment is particularly important at this moment in time given our economic structure.”

Michael Jack of Marriottsville, Maryland, represented Commercial. Jack said that has was surprised that the 4th Circuit chose to announce a new test in this case, and that given its decision and the various tests in use in the different circuits, the issue might be ripe for review by the Supreme Court to clarify one common standard. Jack agreed that the 4th Circuit’s test is potentially more favorable to employees because unlike other circuit’s tests, it allows for a finding of joint employment based on a single factor.

“It’s very significant. I think it creates a situation where contractors would almost always be deemed the joint employers of the employees of their subcontractors given the realities of the construction industry,” Jack said.

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