In Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017), the United States Court of Appeals for the Fourth Circuit established a new test for determining whether two or more persons or entities constitute a joint employer under the Fair Labor Standards Act (“FLSA”).
When it was in existence, J.I. General Contractors, Inc. (“JI”), directly employed the plaintiffs in Salinas. JI performed framing and drywall services. JI, and thus the plaintiffs, worked almost exclusively for Commercial Interiors, Inc. (“Commercial”), a general contractor that offered interior finishing services. The only exceptions where JI did not perform services for Commercial was when Commercial did not have any work for JI and that apparently happened only twice.
With some limited exceptions, JI generally was responsible for hiring and firing the plaintiffs. Commercial, however, played a role in determining the plaintiffs’ daily and weekly schedules. In this regard, Commercial decided the start and stop times at each job site, required plaintiffs to work additional hours during the week or on weekends, and determined on-site staffing needs. Additionally, Commercial was the entity that required the plaintiffs to sign in on timesheets, which bore Commercial’s logo. Commercial required the plaintiffs to attend meetings, including weekly safety meetings, and instructed plaintiffs on what work needed to be completed. The work was generally performed with tools and materials that were provided by Commercial as well. The plaintiffs wore hardhats and vests with the Commercial logo when working on job sites and JI supervisors wore sweatshirts branded with Commercial’s logo. Plaintiffs were even instructed to tell anyone who asked that they worked for Commercial.
In July 2012, the plaintiffs filed a collective action under the FLSA, Maryland Wage and Hour Law, and Maryland Wage Payment and Collection Law, alleging that JI and Commercial (and certain individuals) willfully failed to pay wages, including overtime, required to be paid by the FLSA and Maryland statutes. The plaintiffs alleged that they were jointly employed by Commercial and JI, thereby making them jointly and severally liable for the statutory violations. The United States District Court for the District of Maryland granted summary judgment to Commercial, applying a five factor test that led it to conclude Commercial was not a joint employer. The trial court ultimately entered judgment in the plaintiffs’ favor against JI and the individual defendants (who owned JI). The plaintiffs appealed the district court’s grant of summary judgment to the Fourth Circuit.
The Fourth Circuit acknowledged that the FLSA does not expressly reference joint employment, but noted that Department of Labor regulations recognize a “single individual may stand in the relation of an employee to two or more employers at the same time . . . since there is nothing in the [FLSA] which prevents an individual employed by one employer from also entering into an employment relationship with a different employer.” The Fourth Circuit explained that the regulations distinguish between “separate and distinct employment” and “joint employment.” Separate employment exists when “all the relevant facts establish that two or more employers are acting entirely independent of each other and are completely disassociated with respect to the” individual’s employment. Joint employment on the other hand exists when the “employment by one employer is not completely disassociated from employment by the other employer.”
The United States Supreme Court has long recognized the concept of joint employment (since 1947), but, according to the Fourth Circuit, courts have been unable to develop a coherent test to distinguish separate employment from joint employment. The Fourth Circuit attributed much of the confusion to a decision by the United States Court of Appeals for the Ninth Circuit in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983), where the Ninth Circuit identified four, non-exclusive factors to determine whether a joint employment relationship existed – “whether the alleged employer: (1) had the power to hire and fire the employees, (2) supervised and controlled work schedules and conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.” The Fourth Circuit observed that, over time, courts applied variations of this test to take into account the FLSA’s expansive definition of “employee” and the Ninth Circuit now applies a non-exclusive thirteen factor test when evaluating whether joint employment exists. The Fourth Circuit then devoted several pages to explaining why the Bonnette factors do not work and that no coherent test has been established yet to determine joint employer liability under the FLSA. In establishing its own test for joint employer liability, the Fourth Circuit explained that its new test is guided by the Supreme Court’s direction that the FLSA “must not be interpreted or applied in a narrow, grudging manner” and “because the [FLSA] is remedial and humanitarian in purpose, it should be broadly interpreted and applied to effectuate its goals.”
The Fourth Circuit turned to the FLSA regulations that identify three non-exclusive scenarios in which joint employment generally exist: (1) where there is an arrangement between the employers to share the employee’s services; (2) where one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee. In answering these questions, the Fourth Circuit determined that courts should consider the following six factors: (1) whether formally or as a matter of practice the putative joint employers jointly determine, share, or allocate power to direct, control, or supervise the worker; (2) whether formally or as a matter of practice the putative joint employers jointly determine, share, or allocate power to directly or indirectly hire or fire the worker or modify the worker’s terms and conditions of employment; (3) the degree of permanency and duration of the relationship between the putative joint employers; (4) whether one putative joint employer controls, is controlled by, or is under common control of the other putative joint employer, whether through a direct or indirect ownership interest or through shared management; (5) whether the work is performed on the premises owned or controlled by one or more of the putative joint employers; 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 (e.g., payroll, workers’ compensation insurance, paying payroll taxes). The court emphasized that this list is non-exhaustive of all potentially relevant factors that should be considered. As a general “catch all” factor, the court stated that, to the extent any facts not captured by these six factors “speak to the fundamental threshold question that must be resolved in every joint employment case – whether a purported joint employer shares or codetermines the essential terms and conditions of a worker’s employment – courts must consider those facts as well.” The court then further emphasized that the ultimate determination regarding joint employment “must be based upon circumstances of the whole activity.” To this end, because the Department of Labor regulations focus on whether the entities are “entirely independent” or “not completely disassociated,” one factor alone may form the basis for finding that two or more entities are “not completely disassociated” with respect to a worker’s employment.
The court then explained over several pages why this new test makes sense and should be applied. The court also applied the test to the facts of the case and determined that Commercial was a joint employer with JI and the individual defendants. In finding that Commercial was a joint employer, the court noted that “nearly all of the factors we identified above support such a finding.” Thus, even though not every factor pointed in favor of joint employment, the court found joint employment existed nonetheless.
The Fourth Circuit’s decision in Salinas is significant for obvious reasons, as it sets forth a new test for determining joint employer liability under the FLSA. Whether this test is adopted by other appellate courts remains to be seen, but, for now, at a minimum, companies operating in Maryland, Virginia, West Virginia, North Carolina, and South Carolina will need to adhere to this new test when evaluating contract relationships with other entities and whether a joint employment relationship exists for FLSA purposes.