A Business-Minded Approach To Employment Law

4th Circuit Significantly Expands Joint Employer Liability Under FLSA With Broad New Test

On Behalf of | Mar 24, 2017 | Uncategorized |

The old relationships between employer and employee have been modified with virtually no hope of going back to the old ways. In many industries there is no longer a life-long relationship, nor is there even a “one-to-one” relationship. Frequently an employee has multiple part time relationships with multiple employers. This new structure has had a positive impact for both employer and employee where employers can more specifically structure their work force to meet precise demands, and employees can organize their lives to meet their own requirements.

While this has been a beneficial arrangement in many instances, there is a potential for abuse when the multiple employers are not truly separate and distinct. Two recent cases have created potential exposure for employers and it is worth some examination to ensure that substantial risk is avoided.

In a 2015 case against Brown-Ferris, the definition of joint employers was broadened. In 2017, a case in the 4th Circuit Court of Appeals, Salinas vs Commercial Interiors, created a much broader definition of joint employer under the Fair Labor Standards Act. In that district, if there is any reasonable association between two employers, their activities must be considered to be joint. What this means is that a contractor with a company providing labor to their job site can be responsible for the provision of overtime pay, minimum wage standards and other potential violations of the FLSA requirements for the combined wages paid to an employee.

While this requirement is currently limited to the 4th Circuit (Maryland, Virginia, West Virginia, North Carolina and South Carolina), it is likely that future litigation will expand the affected area to the entire country.

What constitutes being a joint employer? The 4th Circuit case started out as a somewhat common sub-contractor relationship where all of the employees where paid by the sub-contractor. The employees brought an action claiming that they were not paid overtime rates for overtime hours. While the trial court disallowed the employees’ claim, upon appeal the employees won and the primary contractor was considered a joint employer.

The basic question that must be answered under the 4th Circuit holding is whether the two employers are completely disassociated. If not, they become joint.

The court suggested that there are six tests to determine whether two entities are joint employers:

  • Can the two entities both direct or control the employees?
  • Is there a joint determination to hire and fire?
  • Is there a long term relationship between the two entities?
  • Is there a control relationship between the two employers?
  • Do the employers share facilities?
  • Do the employers share functions related to employment, such as payroll, insurance, tools and the like?

Who is in danger? Any business that uses the employees of another organization, particularly those who use another organization for multiple projects or operations, is vulnerable to be considered as a joint employer.

What is at danger? Any employer that is caught up in this process faces potential financial costs to correct the situation

What to do? If there is anyone that is a contract employee, or if you subcontract some labor to another firm, or if you share employees between two separate entities with your own organization (such as with a subsidiary), it is worthwhile to conduct a legal review to determine if there is any potential liability.

Overall the changes in the employment marketplace can be advantageous to all parties. Do not, however, expose yourself when some planning ahead can protect you.

For more information on this issue or any other employment-related issue, contact us at [email protected] or visit our website: danzlaw.net.