On Jan. 25, 2017, in Salinas v. Commercial Interiors, Inc., the 4th Circuit created a brand-new test for joint employer liability under the Fair Labor Standards Act (FLSA). The 4th Circuit’s approach to FLSA joint employer liability is now unique in both framework and substance from other circuits and threatens to expand the joint employment definition.
Most circuits and decisions utilize a joint employer framework focusing on the relationship between the individual worker and the putative joint employer. These decisions generally apply various multifactor versions of an “economic realities” or “control” test to determine whether the putative employer is a “joint” employer of the worker. See, e.g., Zeng v. Liberty Apparel Co., Inc., 355 F.3d 61, 66-77 (2d Cir. 2003).
Salinas emphasizes that the 4th Circuit applies a different framework: “a two-step framework for analyzing FLSA joint employment claims, under which courts must first determine whether two entities should be treated as joint employers and then analyze whether the worker constitutes an employee or independent contractor of the combined entity.” Salinas emphasizes that the focus of this framework in general, and the first step in particular, is on the relationship between the two corporate entities, not the worker and the putative joint employer. The court stated that “joint employment exists when (1) two or more persons or entities share, agree to allocate responsibility for, or otherwise codetermine – formally or in-formally, 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 in-dependent contractor.”
J.I., a drywall installer subcontractor, directly employed the plaintiffs. J.I. subcontracted almost exclusively for general contractor Commercial Interiors. Commercial Interiors required J.I.’s employees to wear Commercial Interiors-branded apparel on job sites, provided all tools and equipment necessary for J.I.’s employees to work, required J.I.’s employees to sign in and out, oversaw and supervised the work of J.I.’s employees on a daily basis, and instructed J.I’s employees to tell anyone who asked that they worked for Commercial Interiors. The plaintiffs sought unpaid overtime under the FLSA from J.I. and Commercial Interiors under a joint employer theory.
The court in Salinas decided as a matter of law that these facts, applied to its new six-factor test discussed below, demonstrated that JI and Commercial Interiors were “not completely disassociated,” and therefore were joint employers. Salinas specifically rejected Commercial Interiors’ argument that its relationship with J.I. was “nothing more or less than the contractor-subcontractor relationship which is normal and standard in the construction industry.” The court stated that whether Commercial Interiors and J.I. “engaged in a ‘traditional,’ ‘normal,’ or ‘standard’ business relationship has no bearing on whether they jointly employ a worker for purposes of the FLSA.”
According to Salinas, focusing on the relationship between the two corporate entities is “dictated by” the relevant Department of Labor regulation, 29 C.F.R. § 791.2(a), “and the purpose of the joint employment doctrine.” The regulation distinguishes between “separate and distinct employment” and “joint employment.” “Separate employment exists” when the two companies are “acting entirely independent of each other and are completely disassociated with respect to” the individual worker. “By contrast, joint employment exists when … employment by one employer is not completely disassociated from employment by the other employer.” According to the Salinas court, therefore, the “proper focus” of the first step is, unlike in other circuits, on “the relationship between the putative joint employers.”
Salinas criticizes other circuits’ “economic realities”-focused tests as “inapposite” to the question of whether the two corporate entities are “not wholly disassociated.” Instead, Salinas sets forth its “own test for determining whether two persons or entities constitute joint employers for purposes of the FLSA,” with six non-exclusive factors courts should consider:
- 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, by direct or indirect means;
- 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;
- the degree of permanency and duration of the relationship between the putative joint employers;
- 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;
- 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
- 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.
Salinas extends joint employer liability beyond the limits set by other circuits, which apply some version of an “economic realities” test. Further, it sets up a competing test that appears to be less favorable for many employers. Companies would be well-advised to review their business relationships with other companies in light of Salinas.