Fourth Circuit Clarifies FLSA Joint Employment Standard

Practical Law Legal Update w-005-6127 (Approx. 5 pages)

Fourth Circuit Clarifies FLSA Joint Employment Standard

by Practical Law Labor & Employment

Background

The plaintiffs worked in Maryland as drywall installers and were directly employed by J.I. General Contractors (J.I.). J.I. had a contract with Commercial Interiors to provide Commercial with workers. The plaintiffs' work was almost exclusively for Commercial. Although J.I. had direct responsibility for hiring and firing the plaintiffs and for paying them, there was at least one instance in which a Commercial supervisor threatened a plaintiff's job. Commercial also paid the plaintiffs on multiple occasions. In addition, Commercial:

Played a role in determining:
- the plaintiffs' work schedules; and
- the job locations at which the plaintiffs worked.
Supervised the plaintiffs' work, verifying that the work was completed satisfactorily.
Provided:
- the plaintiffs with hardhats and vests bearing Commercial's logo; and
- nearly all the tools, equipment, and materials the plaintiffs used to complete their work.
Required the plaintiffs to attend meetings (including weekly safety meetings) in which Commercial's foremen instructed the plaintiffs on the work they needed to do and how they were to go about doing their assigned work.
Gave the plaintiffs timesheets to indicate their work time. Commercial retained the timesheets and J.I. did not maintain any record of the plaintiffs' work time.

In 2012, the plaintiffs brought a collective action against J.I. and Commercial in federal district court for willfully failing to pay them overtime in violation of the FLSA and Maryland law. The plaintiffs alleged that J.I. and Commercial were joint employers. The district court granted summary judgment to Commercial, determining that it was not a joint employer. The plaintiffs' overtime claims against J.I. proceeded to trial and the plaintiffs obtained a judgment against J.I. and were awarded damages.

The plaintiffs appealed the district court's grant of summary judgment to Commercial, arguing that the district court used an improper test to determine whether Commercial was a joint employer.

Outcome

The Fourth Circuit:

Reversed the district court's grant of summary judgment to Commercial.
Determined that the district court applied an incorrect test in concluding that:
- Commercial was not a joint employer of the plaintiffs under the FLSA; and
- the proper test should be based on a DOL regulation on joint employment under the FLSA.
Held that there is a two-step framework for determining whether entities are joint employers under the FLSA, in which a court:
- first applies a non-exhaustive six-factor test to analyze whether the potential joint employers are "not completely disassociated" regarding a worker to the extent that they agree to share, allocate responsibility for, or otherwise codetermine the worker's essential employment terms and conditions; and
- then determines whether the potential joint employers' combined influence over the essential terms and conditions of the worker's employment renders the worker an employee as opposed to an independent contractor.
Applied its two-step framework and found that Commercial jointly employed the plaintiffs under the FLSA.
Remanded to the district court.

The Fourth Circuit noted that:

The DOL's joint employment regulation states that joint employment exists when employment by one employer is "not completely disassociated from employment by the other employer" (29 C.F.R. § 791.2(a)).
There are distinctions across circuits in interpreting joint employment under the FLSA. The Ninth Circuit's four-part test in Bonnette v. California Health and Welfare Agency relied on common law agency principles (see704 F.2d 1465 (9th Cir. 1983)). That test has been applied by other circuits (see Gray v. Powers, 673 F.3d 352, 355 (5th Cir. 2012); Baystate Alt. Staffing, Inc. v. Herman, 163 F.3d 668, 675–76 (1st Cir. 1998)). Other circuits have modified the Bonnette test (see Zheng v. Liberty Apparel Co., 355 F.3d 61, 69 (2d Cir. 2003)).
Its decision in Schultz v. Capital Int'l Sec., Inc.:
- held that the joint employment inquiry must address the "relationship" between the employer that "uses and benefits from" the workers' services and the party that "hires or assigns the workers to that employer"; and
- asserted that Bonnette's reliance on common-law agency principles did not "square" with the FLSA's broad definition of "employee," and that the Bonnette factors (and the tests based on those factors) incorrectly focused on the relationship between the employee and putative joint employer, instead of on the relationship between the potential joint employers (as should be the focus based on the DOL's joint employment regulation).
(466 F.3d 298, 305-10 (4th Cir. 2006).)

The Fourth Circuit stated that:

Its decision in Schultz correctly identified the DOL regulation focusing on the nature of the relationship between potential joint employers (specifically, the "relative association or disassociation" between entities on establishing a worker's essential employment terms and conditions) as the first step in the joint employment inquiry.
To answer the relative association or disassociation question, courts should consider the following six factors about the potential joint employers and their relationship in the context of the totality of the circumstances:
- whether they jointly determine, share, or allocate the power to directly or indirectly direct, control, or supervise the worker;
- whether they jointly determine, share, or allocate the power to directly or indirectly hire or fire the worker or modify the worker's terms or conditions of employment;
- the degree, permanency, and duration of their relationship;
- whether one employer controls, is controlled by, or is under common control with the other, either through shared management or ownership interest;
- whether the work is performed on premises owned or controlled by them, independently or related to one another; and
- whether they 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.
Having reviewed these six factors, the courts should analyze the 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 Fourth Circuit applied its two-step framework (including the six-part test comprising step one), and found that Commercial jointly employed the plaintiffs with J.I.

Practical Implications

The Fourth Circuit's decision in Salinas puts forth a different test for joint employment under the FLSA than that applied by the Ninth Circuit and other circuits. The Fourth Circuit's test is reliant on the DOL joint employment regulation and, unlike the Ninth Circuit test, focuses on the relationship between the potential joint employers, as opposed to the relationship between the worker and a potential joint employer.

Entities within the Fourth Circuit that are not a worker's "direct employer" but that nevertheless have a role in determining the worker's key employment terms and conditions should be aware of the factors and two-step framework applied in the Fourth Circuit's joint employment determination, and that they may be found to be joint employers based on those factors and under that framework. Whether the Fourth Circuit's test will gain traction in other circuits remains to be seen.

For more information about how different circuits has treated the issue of joint employment under the FLSA, see Practice Note, Joint Employment Overview: Circuit Court Tests Under the FLSA.

Fourth Circuit Clarifies FLSA Joint Employment Standard | Practical Law