Construction, Employment Law, Publications

Fourth Circuit Court of Appeals Establishes New "Joint Employer" Test Under the Fair Labor Standards Act

February 1, 2017

Just when employers thought they had some clarity around the issue of “joint employer,” an appellate court introduces a new test for assessing “joint employer” status. Initially, the Fourth District Court of Appeals ruling affects only the circuit courts in its jurisdictions.  However, the ruling could “spill over” into other circuit courts that have either not yet established a test or are amenable to changing their test.  The ruling also could trigger a Supreme Court review as now there is a conflict among the federal appellate courts’ views on assessing joint employer status.

In this Fair Labor Standards Act (FLSA) case, plaintiffs sued their direct employer (a now defunct framing and drywall contractor) as well as the general contractor for whom their employer contracted for framing and drywall work. The general contractor offered general contracting and interior finishing services, including: drywall installation, carpentry, framing, and hardware installation.  The district court granted summary judgment to the general contractor, holding that it did not jointly employ plaintiffs because it entered into a “traditionally . . . recognized,” legitimate contractor-subcontractor relationship and did not intend to avoid compliance with the FLSA or Maryland law.

The Fourth Circuit, however, stated that the legitimacy of a business relationship between putative joint employers and the putative joint employers’ good faith are not dispositive of whether entities constitute joint employers for purposes of the FLSA. Rather, joint employment exists 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. Based upon this test and the facts, the Fourth Circuit found the defendants to be “joint employers” for purposes of the FLSA and reversed the district court’s grant of summary judgment.

In a lengthy opinion, the Fourth Circuit reviewed the history of the FLSA, Supreme Court opinions concerning “joint employer” status, the Ninth Circuit’s Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983) opinion which the Fourth Circuit stated was part of the problem for future court’s assessing the “joint employer” issue, and the decisions of other circuit courts addressing this issue.

Initially, the Fourth Circuit reaffirmed its two step approach established in Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 305, 307, 310 (4th Cir. 2006).  Under this approach 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, if they are joint employers, or each entity, if they are separate employers.  The Fourth Circuit then specifically rejected the Ninth Circuit’s Bonnette approach to analyzing the joint employer issue finding it to be contrary to the FLSA and the Department of Labor’s guidance.  Instead, the Fourth Circuit established a six part test to use in this analysis.

The following factors are to be used in assessing the issue:

(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 Fourth Circuit determined the defendants to be “joint employers” under this test, reversed the district court’s grant of summary judgment, and remanded the case for further proceedings consistent with the opinion.

The Fourth Circuit Court of Appeals has appellate jurisdiction over district courts in the following districts:  District of Maryland;  Eastern District of North  Carolina; Middle District of North Carolina; Western District of North Carolina; District of South Carolina; Eastern District of Virginia; Western District of Virginia; Northern District of Virginia; and, the Southern District of Virginia.  Any employer, practitioner, working within the jurisdiction of these district courts must familiarize themselves with the Fourth Circuit’s opinion to avoid being determined to be a “joint employer” under the FLSA.

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