Tag Archives: joint employer

January 25, 2018

Supreme Court Denies Review of FLSA Joint-Employer Test

By Jeremy Ben Merkelson

It seems like an easy question: who is an “employer” liable for paying minimum wage and overtime under the Fair Labor Standards Act (FLSA or Act)? The answer is not always straightforward when there are two potential joint employers, at least in part since the law varies from jurisdiction to jurisdiction on this important issue.

The parties to a recent case were looking to the U.S. Supreme Court to resolve the issue and establish a nationwide joint-employer test. But earlier this month, the Supreme Court denied a petition to hear the case of Hall v DirecTV which would have allowed the Court to weigh in on the joint-employer issue.

How Joint-Employment Situations Arise

Many businesses and industries face joint-employer situations, including the construction industry, government contractors, franchisors, and other related entities. In addition, organizations that use intermediaries such as staffing agencies, employee leasing companies, and professional employer organizations (PEOs) to recruit, hire, and administer workers also could be subject to joint-employment situations.

In Hall, thousands of technicians who installed and repaired satellite systems for DirecTV customers nationwide were classified and paid as independent contractors. DirecTV contracted with numerous intermediary entities known as Home Service Providers and Secondary Service Providers (Providers) to obtain technicians. Over time, DirecTV acquired some of these Providers and others remained independent. These Providers served as middle-managers between DirecTV and the individual technicians, implementing and enforcing DirecTV’s hiring criteria, relaying scheduling decisions from DirecTV using DirecTV’s centralized work-assignment system, maintaining files on each technician, and otherwise supervising the technicians.

In their lawsuit against DirecTV and their respective Providers, the technicians alleged that they should have been treated as employees rather than independent contractors, seeking to hold both DirecTV and the Providers jointly liable for unpaid overtime pay and minimum wage violations. In their complaint, the technicians asserted that DirecTV dictated nearly every aspect of their work through agreements with the Providers that directly employed the technicians. They alleged that the agreement required technicians to purchase and wear DirecTV shirts, carry DirecTV identification cards, display the DirecTV logo on their vehicles, review DirecTV training materials, follow DirecTV’s standardized policies and procedures, and receive their work assignments through DirecTV’s system. In addition, they asserted that DirecTV employees exercised quality control over the technicians’ work, imposing compensation-related penalties for unsatisfactory service and allowing DirecTV to effectively terminate technicians by not assigning them any work orders through the company’s system.

The technicians filed FLSA collective-action lawsuits against DirecTV in courts across the United States. In the case brought in Maryland, a federal judge dismissed the case on the pleadings, ruling that the technicians had failed to adequately allege facts showing that DirecTV was a joint employer since DirecTV did not directly hire or fire the technicians and DirecTV did not otherwise control their compensation.

Fourth Circuit Court Takes Expansive Approach

On appeal, a Fourth Circuit panel reversed, concluding that the technicians had alleged sufficient facts based on a more lenient standard for joint employment. Disregarding the approach in other jurisdictions, the Hall court held that the focus for joint employment should not be on each employment relationship as it exists between the worker and the party asserted to be a joint employer. Rather, relying on a particular DOL regulation, the court said the appropriate analysis is whether the two putative joint employers are “not completely disassociated” with respect to the worker. Accordingly, the Hall approach involves a “two-step framework” where the court (1) determines whether the two putative employers “codetermined the key terms and conditions of a worker’s employment” and (2) if the answer is yes to the first inquiry, the court then asks whether “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 Hall “not completely dissociated” standard is at odds with the majority approach in eight other circuits and trial courts in Colorado (although no Tenth Circuit case has addressed this issue) which follow the “economic realities” test for joint employment – a direct examination of the employment relationship as it exists between the worker and each putative employer. Courts apply different and varying factors in applying the economic realities analysis across the United States, weighing as many as ten different factors such as the power to hire and fire workers, the permanence of the working relationship, and control over work schedules, payroll, benefits, and employment records. The overarching concern is whether the alleged employer possesses direct or indirect power to control significant aspects of the worker’s employment.

Given the Fourth Circuit’s departure from the majority approach, DirecTV appeared to have a good chance at getting the Supreme Court to take up the joint-employer issue, but the Court denied review. That lets the Fourth Circuit’s decision stand, leading to a much lower bar for plaintiffs in the Fourth Circuit. Read more >>

February 2, 2016

DOL’s New Joint Employer Interpretation Seeks To Hold More Employers Accountable

Nugent_BBy Brian Nugent

The U.S. Department of Labor (DOL) issued a new Administrator’s Interpretation (AI) that emphasizes the agency’s intent to apply joint employer status more broadly under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Even though the definition of joint employment under these acts has not changed, the DOL made it clear that it will examine dual employer relationships closely with what appears to be an intent to find joint employer status in more circumstances.

Of course, companies engaged as a “dual employer” generally seek to avoid joint employer status. Being a joint employer in the eyes of the DOL can result in liability for the acts of a client that has the primary responsibility to direct and control employees. This is not a favorable place to be. Temporary staffing agencies and PEOs do not have enough control over workers assigned to a client location to assume such liability. As a result, such companies have worked for years to maintain dual or co-employment relationships that do not constitute joint employment. It appears, however, that the DOL, through the AI, is trying to chip away at such relationships and include more dual employers within the definition of joint employer. 

All companies engaged in the business of providing employees to clients or co-employing workers are affected by this AI. As explained in more detail below, it is clear that the DOL intends to scrutinize all “dual employer” relationships more closely and focus on the degree of control over workers as a guide to determine whether a joint employer relationship exists..

The DOL identified the two most likely scenarios where joint employment typically exists. One type of joint employment, referred to as vertical joint employment, is where there is an “intermediary employer”, such as a staffing agency, PEO, or other provider of workers to a client. Where such a relationship exists, the DOL will focus on the economic realities of the relationship to determine whether a worker is economically dependent on two or more employers, and if so, will be inclined to find joint employer status. The second type of joint employment under scrutiny by the DOL is where the employee has two or more separate, but related employers, each benefitting from a person’s work during the same period of time. These scenarios are explained in more detail below.

Vertical Joint Employment

In a vertical employment relationship, it is common for the “intermediary employer” to be the W-2 employer that actually pay the wages and payroll taxes, but does not direct and control the day-to-day activities of the worker. The issue for the DOL as expressed in the AI is whether, based on the economic realities of the employment relationship shared by the intermediary and the client company, joint employment exists between the employee, the intermediary employer and the client at which the employee is assigned to work.

The economic realities test is not new to the FLSA or MSPA. What is new is that in reviewing a relationship for joint employer status, the DOL announced in the AI that it will abandon its prior practice to look only to its joint employer regulations, and focus exclusively on the economic realities factors in vertical employment scenarios. This is not necessarily bad news, but it is significant.

Under the economic realities test, the degree of control exerted by a person or entity over the workers is only one of the primary factors in a joint employer analysis, and is not definitive. Other economic realities factors the DOL will consider “in the mix” include:

  • Does the other employer direct, control, or supervise (even indirectly) the work?
  • Does the other employer have the power (even indirectly) to hire or fire the employee, change employment conditions, or determine the rate and method of pay?
  • Is the relationship between the employee and the other employer permanent or long-standing?
  • Is the employee’s work integral to the other employer’s business?
  • Is the work performed on the other employer’s premises?
  • Does the employer perform functions typically performed by employers, such as handling payroll, providing workers’ compensation insurance, tools, or equipment, or in agriculture, providing housing or transportation?
  • Does the employee perform repetitive work or work requiring little skill?

The DOL also identified industries where it believes vertical joint employment relationships are common, and as a result, under increased scrutiny. These industries include “agriculture, construction, hotels, warehouse and logistics” as well as other industries that regularly use staffing agencies or subcontracting intermediaries.

Horizontal Joint Employment

According to the DOL, the so-called horizontal joint employment relationship exists where multiple employers who are sufficiently associated with each other both benefit from the individual’s work, such as where two separate restaurants have the same ownership and jointly schedule an employee to work at both establishments. The factors to consider when analyzing this type of joint employment include:

  • Who owns or operates the possible joint employers?
  • Do they have any agreements between the employers?
  • Do the two employers share control over operations?
  • Do the employers share or have overlapping officers, directors, executives, or managers?
  • Does one employer supervise the work of the other?
  • Do the employers share supervisory authority over the employee?
  • Are their operations co-mingled?
  • Do they share clients or customers?

The DOL stresses that it is not necessary for all, or even most, of these factors to exist in order to find joint employment status between two or more related employers.

NLRB Focus On Joint Employers

The National Labor Relations Board (NLRB) has also been expanding its use of joint employment status to hold companies liable for violations of the National Labor Relations Act. Although the DOL stated in a recently issued Questions and Answers document that its joint employment analysis is different than that used by the NLRB, reports suggest that the office of the Solicitor of Labor reached out to the NLRB’s General Counsel on the issue of joint employment in advance of issuing the new Administrator’s Interpretation. It is clear that both agencies are focused on a broad application of the joint employer doctrine.

What Does This Mean For Employers

If joint employment is found, both entities may be held responsible for compliance with all applicable laws, including wage and hour and other employment protection laws. This includes making sure non-exempt employees are paid minimum wage for all hours worked and overtime pay for hours worked over 40 in a workweek. For employers covered by MSPA, both employers are liable for ensuring necessary disclosures of the terms and conditions of employment, and payment of wages are made, as well as maintaining required written payroll records. A joint employer could also find itself named as a co-defendant in a tort liability suit brought against the “primary actor” employer.

Joint employment also applies for determining eligibility and coverage under the Family and Medical Leave Act (FMLA). This is critical as smaller employers with less than 50 employees may think they are free of any FMLA obligations, only to find that they meet the coverage threshold if they are deemed to be a joint employer with another entity, such as a staffing agency that provides them with additional workers. Similarly, joint employer status could affect compliance under the Affordable Care Act.

In light of this new guidance and the emphasis by the federal government on broad application of joint employment, staffing agencies, PEOs, and their clients should examine their relationships, including but not limited to, the degree of control, supervision, termination rights, setting of pay rates, and provision of tools, training, and policies exerted by the client company. The higher the degree of control and reservation of rights over the workers, the higher the chance that a joint employment relationship will be found. This also means that clients may ask staffing agencies to provide additional information about their compliance with applicable laws so as to gauge their level of risk. In fact, compliant staffing companies that are violation-free may see that as a marketing point in the future.

In the end, if employers comply with applicable laws, joint employment need not come into play. It is only when compliance takes a back seat and government investigators arrive at the door, that companies need to worry about whether they are a joint employer.

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August 28, 2015

NLRB Throws Out Years of Joint-Employer Precedent – Adopts Two-Part Test For Joint-Employer Status

Mumaugh_BBy Brian Mumaugh 

The National Labor Relations Board (NLRB or Board) has thrown employers a curve by overruling 30 years of long-standing decisions that narrowed the circumstances under which a joint-employer relationship could be found to exist. In a closely-watched decision, the Board revised its joint-employer standard, dictating a broader two-step test that will result in entities that use contingent workers more likely being deemed joint employers for union representation purposes. Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (Aug. 27, 2015). 

Two-Part Joint Employer Test 

In its 3-to-2 decision, the Board reaffirmed a 1982 joint-employer standard under which the Board will find that two or more statutory employers are joint employers of the same employees if they share or codetermine the essential terms and conditions of employment. First, the Board will determine whether the putative employer has a common-law employment relationship with the employees in question. If that relationship exists, the Board then will determine whether the employer possesses sufficient control over the employees’ essential terms and conditions of employment to permit meaningful collective bargaining. 

Employer Need Not Exercise Control Over Employees 

Over the past 30 years, joint-employer cases have defined the degree of control that an employer must assert over the workers to be deemed a joint employer. Those cases, including Laerco and TLI, required that the putative employer actually exercise control over the terms and conditions of employment to be deemed a joint employer. In addition, exercising that control had to be direct and immediate, not of a limited and routing nature. Simply possessing the authority to exercise control, without actually exercising that control, was not enough under long-standing Board law. 

That requirement is now gone. The Board ruled, in Browning-Ferris, it will no longer require that a joint employer exercise its authority to control the terms and conditions of the employees’ employment. The proper inquiry will be whether the statutory employer “possesses sufficient control over the work of the employees to qualify as a joint employer with” another employer. In addition, control exercised indirectly, such as through an agent or intermediary, may be sufficient to establish joint-employer status. 

BFI Deemed A Joint Employer With Temp Agency 

After articulating its revised test, the Board applied it to the BFI case at hand. The case arose after a union sought to include certain workers at the BFI Newby Island Recyclery in a bargaining unit during a union election. The workers were employed by Leadpoint Business Services, a temporary labor services agency, and were assigned to work at BFI’s recycling plant as sorters, screen cleaners and housekeepers. The contract between BFI and Leadpoint specifically stated that Leadpoint was the sole employer of the workers and there was no employment relationship between BFI and those workers. 

The Board concluded that BFI was a joint employer of the workers with Leadpoint. Contributing factors leading the Board to determine that BFI is a common-law employer and shares or codetermines essential terms and conditions of employment include: 

  • BFI retained the right to require that Leadpoint meet or exceed BFI’s own standard selection procedures and tests, requires drug tests and prohibits Leadpoint from hiring workers deemed to be ineligible for rehire by BFI;
  • BFI retained the right to reject any worker that Leadpoint refers to its facility “for any or no reason” and to discontinue the use of any personnel that Leadpoint assigned to it;
  • BFI managers had requested the immediate dismissal of certain workers due to misconduct and Leadpoint dismissed them from BFI’s facility shortly afterward;
  • BFI controlled the speed of the material streams and specific productivity standards for sorting;
  • BFI managers assigned specific tasks that need to be completed, determined where workers are to be positions and exercised near-constant oversight of workers’ performance;
  • BFI identified the number of workers it needs, the timing of the shifts and when overtime is necessary, even though Leadpoint selects the specific employees who will do the work;
  • Despite Leadpoint determining pay rates, administering payroll and benefits and retaining payroll records, BFI prevented Leadpoint from paying employees more than BFI employees in comparable jobs and used a cost-plus model under the contract;
  • After a new minimum wage law went into effect, BFI and Leadpoint entered into an agreement for BFI to pay a higher rate for the services of Leadpoint employees. 

As a result of finding that BFI was a joint employer of these workers, the Board ordered the Regional Director to open and count the impounded ballots cast by the employees in the petitioned-for unit. If the employees voted for union representation, BFI will have to collectively bargain over the terms and conditions of employment over which it retains the right to control. 

Implications For Employers 

The Board seeks to prevent companies from insulating themselves from the application of labor laws by using temporary or other contingent workforces and this new standard will further their goal. This new, broader standard for joint-employer status will make it easier for unions to include contingent workers into bargaining units at the facilities for which they are providing services. In addition, as pointed out by the dissent, this change “will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity, including what have heretofore been unlawful secondary strikes, boycotts and picketing.” 

If your organization uses contingent workers, you should review your existing labor services agreements and, to the extent possible, renegotiate any terms that reserve your right to control the terms and conditions of the contingent workers’ employment. You also should attempt to eliminate any functional oversight and decision-making to ensure that you are not exercising any control, whether directly or indirectly, over the contingent workers. The reservation of the right to dictate any terms or conditions of employment, or the actual exercise of that control in any way, is likely to lead you to be deemed a joint employer of those workers.

We will keep you posted of further developments, including any appeals of this decision.

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