What Constitutes a “Joint Employer”?

There have been a couple of recent cases in the U.S. Court of Appeals for the 4th Circuit (covers Maryland, Virginia, West Virginia, North Carolina and South Carolina) that provide the “test” (in those jurisdictions) to determine if two or more entities constitute “joint employers” for purposes of the Fair Labor Standards Act (FLSA).

The FLSA requires covered employers to pay their employees a minimum wage and overtime. If an employee works for more than one employer, the Department of Labor’s regulations distinguishes between “separate and distinct employment” and “joint employment” for the purposes of calculating overtime.

“Separate employment” means the entities you work for “are acting entirely independently of each other and are completely disassociated” with regard to the individual’s employment. “Joint employment” means when the employment by one employer is not “completely disassociated” from employment by the other.

So why should you care?  Because this affects how overtime is calculated.  When an employee works for joint employers, all hours worked for both are added together to determine the eligibility for overtime pay under the FLSA.

In Salinas v. Commercial Interiors, Inc, the court reviewed the U.S. District Court for the District of Maryland’s determination that a group of drywall installers who were employed by a subcontractor that worked almost exclusively with one prime contractor, were not jointly employed by the two entities, and thus not entitled to overtime.

In Hall v. DIRECTTV, the 4th Circuit considered an appeal from the same Maryland District Court and trial judge where overtime claims had been dismissed for technicians employed by allegedly independent service providers that were all part of DIRECTTV’s provider network.

In the Salinas case, the court identified contradictions among the various courts in determining what was a joint employers for purposes of the FLSA.  The court stated that the confusion started with the 9th Circuit’s holding in Bonnette v. California Health and Welfare Agency (1983). In this case, the court declared that a four-factor framework could be used to determine if a person worked for a joint employer.  Did the employer (1) have the power to hire and fire the employees, (2) supervise and control employee work schedules, (3) determine the rate and method of payment, and (4) maintain employment records?

The Salinas court believed that the four-factor test came from common law used to determine whether an agency relationship exists for purposes of distinguishing an employee from an independent contractor.  The FLSA expanded the term “employee” beyond the “agency” determination.  As a result, the Salinas court stated that courts should no longer employ the “Bonnette test” in the FLSA context.

The Salinas stated that when the FLSA applied, two entities are not “completely disassociated” and are joint employers, when (1) 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 (2) 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.  They provided six factors that should be used in answering the question of joint employment:

1. Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;
2. Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to-directly or indirectly-hire or fire the worker or modify the terms or conditions of the worker’s employment;
3. The degree of permanency and duration of the relationship between the putative joint employers;
4. Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;
5. Whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or in connection with one another; and
6. Whether, formally or as a matter of practice, the putative joint employers 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.

The court then applied these six factors to the plaintiffs in the Salinas case and reversed the trial judge and determined that the defendants were joint employers.  Then in the Hall case, they applied the same six factor test and Similarly, in Hall, the 4th Circuit applied the test and reversed the trial court’s dismissal of plaintiffs’ case for failing to sufficiently allege a joint employer relationship.

The bottom line is that employers with workers covered under FLSA need to be aware of what rules apply in determining how overtime is calculated.  If you are in a potential joint employment situation, you and your workers need to understand the rules.  Even though this decision was made for 4^th District Court states, it could be used as the basis for claims in other states.