Employers increasingly rely on independent contractors, “temps” and other nontraditional workers to solve their business needs. These nontraditional work arrangements can raise a variety of complex legal issues related to joint employment liability, including but not limited to potential employment and labor law claims against the entity utilizing the nontraditional workers. Liability as a joint employer is governed by an increasingly disparate number of factors for determining “employee status” under various federal and state statutes, and regulatory schemes. Employers are left struggling to navigate the expansive and shifting regulatory, judicial and legislative definitions that determine joint employment liability. This article endeavors to help employers and employment law practitioners understand joint employment liability through a discussion of these new and developing legal standards.
The federal government continues its quest to narrow the parameters for joint employment liability. The U.S. Department of Labor (DOL) recently rescinded Obama-era guidance that greatly expanded the scope of joint employment. See https://www.dol.gov/newsroom/releases/opa/opa20170607. The first administrative interpretation (AI) that was rescinded addressed the classification of independent contractors as employees under the FLSA. The DOL essentially created a presumption of employment for all workers under the FLSA, stating “most workers are employees under the FLSA’s broad definitions.” see administrator’s interpretation No. 2015-1 (July 2015). The second AI that was rescinded established new standards for determining joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The DOL took the position that “the concept of joint employment, like employment generally, should be defined expansively under the FLSA and MSPA.”
While the two withdrawn wage and hour AIs were not binding law, they demonstrated a significant shift in wage and hour law advocated by the prior administration, and served as the DOL’s justification for its enforcement actions. The rescission of these two AIs was the Trump administrations’ first step in clarifying its position on joint employment issues.
The legislative branch has quickly followed suit, introducing the Save Local Business Act to the House in July. The act amends the National Labor Relations Act (NLRA) and the FLSA to provide that an entity may be considered a joint employer only if it “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment (including hiring employees, discharging employees, determining individual employee rates of pay and benefits, day-to-day supervision of employees, assigning individual work schedules, positions, and tasks, and administering employee discipline),” see Summary: H.R.3441—115th Congress (2017-2018) (available at https://www.congress.gov/bill/115th-congress/house-bill/3441). Many were surprised when the bill was approved by the Committee on Education and the Workforce with a 23 to 17 vote. The bill currently has 95 co-sponsors, including bipartisan support from three Democrats. While this bill provides hope for a more clear and narrower path to joint employment liability, if successful it would only determine liability under the NLRA and FLSA, and not provide relief under the myriad of other employment statutes that would continue to retain a broad definition of joint employment.
The broadening of joint employment liability by the courts continues, as demonstrated by the most recent notable Circuit Court decision on the issue under the FLSA. In Salinas v. Commercial Interiors, No. 15-1915, ___ F.3d ___ (4th Cir. Jan. 25, 2017), the U.S. Court of Appeals for the Fourth Circuit defined the concept of joint employment so expansively that virtually every relationship with an outsourced worker might be deemed joint employment under the FLSA. The Fourth Circuit largely relied on a 1958 DOL regulation in establishing a new six-factor test to determine whether two or more entities are joint employers for purposes of the FLSA. The named plaintiffs, Mario Salinas and William Ascencio, installed drywall for J.I. General Contractors, a subcontractor to defendant Commercial Interiors. They brought an action against J.I. and Commercial Interiors alleging violations of the FLSA and Maryland wage and hour laws. The plaintiffs argued that J.I. and Commercial Interiors jointly employed them and, on that basis, the hours worked for both employers each week should have been aggregated for purposes of assessing compliance with the FLSA and Maryland laws.
The Fourth Circuit in Salinas found that the legitimacy of the contractor-subcontractor business relationship between the two entities was not dispositive of joint employment status, and largely rejected the widely established “economic realities” tests utilized by most other circuits under the FLSA. Instead, the Fourth Circuit announced its own new test, which finds joint employment status where: “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 entities’ combined influence over the essential terms and conditions of the worker’s employment render the worker an employee as opposed to an in-dependent contractor.” The court also set forth six nonexclusive factors that district courts “should” consider when applying the test. While the Fourth Circuit’s new test comes with familiar disclaimers: no one factor is dispositive, the list is not exhaustive, and any “facts” relevant to the “fundamental” question must be considered, the new test nonetheless interprets joint employment liability more broadly than any other circuit under the FLSA.
Employers also face uncertainty surrounding the future of joint employment liability in the labor law context. The National Labor Relations Board’s (NLRB) pivotal decision in Browning-Ferris Industries of California, 362 N.L.R.B. No. 186 (Aug. 27, 2015), fundamentally changed the joint employer standard under the NLRA. In short, the NLRB broadened the standard from a focus on direct control creating joint employment liability to allowing indirect control, or even the potential for indirect control, to suffice. That decision has been appealed to the D.C. Circuit. Many predict, however, that as soon as the newly constituted NLRB is given the opportunity, it will overturn Browning-Ferris. Until then, employers must continue to defend against the increased likelihood of joint employer liability under the NLRA pursuant to the indirect control standard.
If the evolving federal standards and numerous, multi-factored tests created by the courts weren’t complicated enough, state and local laws continue to provide an additional layer for employers to navigate. The number of laws passed by the states to more narrowly define the joint-employment relationship has continued to increase in response to federal regulations and court rulings expanding the definition. Although conflicting interpretations of joint employment and independent contractor status under various state laws are nothing new, employers also face an increase in local regulations governing liability related to employers’ relationships with nontraditional workers.
One example is the Freelance Isn’t Free Act (No. 1017-2015), which went into effect on May 15. This law gives independent contractors a right to sue for double damages if they are not provided with a written contract with specified payment and other terms and are not paid by the date provided in the agreement or, if not so specified, within 30 days after completion of services under the contract. The law does not make clear who is a “freelancer” within the meaning of the act, making it difficult for employers to determine if they are contracting with a worker who may be covered by this new law. The law is particularly problematic in so far as it provides for double damages for failure to pay for services on a timely basis even if the recipient of the services has a good faith belief that the services were not performed in a satisfactory manner or that payment is not due for any other legitimate reasons.
The new legislation and continually evolving standards for determining joint employment liability make it that much more important for employers to avoid situations that will increase the likelihood of a finding of joint employment liability. Employers should identify potential vulnerabilities in their policies and practices with subcontractors, staffing agencies, professional employer organizations, independent contractors, and other entities or individuals with whom they share workers. In addition to evaluating their own policies and practices, employers should monitor the policies and practices of those with whom they share workers to help defend against a finding of joint employer liability.
Nina K. Markey, a shareholder at Littler Mendelson, represents and counsels employers in all aspects of employment and labor law in the single plaintiff and class action contexts.