Joint Employer Liability, 1120 SCBJ, SC Lawyer, November 2020, #46

• Author: By Katherine Walker
• Position: Vol. 32 Issue 3 Pg. 46

Joint Employer Liability

Vol. 32 Issue 3 Pg. 46

South Carolina BAR Journal

November, 2020

By Katherine Walker

For the first time in 50 years, the United States Department of Labor (DOL) has published a new “employer- friendly” standard for determining whether two entities are “joint employers” for purposes of liability under the Fair Labor Standards Act. The new rule, published at 29 C.F.R. § 791, took effect on March 16, 2020, and is expected to have a significant impact on joint employer status. The issue of joint employer liability has historically caused much confusion, been frequently litigated, and been the subject of inconsistent court decisions. According to the DOL, the changes in the new rule are “designed to reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections, promote greater uniformity among court decisions, reduce litigation, and encourage innovation in the economy.”1^[1]

What is a joint employer?

What is a joint employer? In certain circumstances, two different companies can both be considered the employer of a worker with joint obligations to comply with federal and state employment laws with respect to those employees.

The question of joint employer status can arise in many scenarios such as (1) staffing agencies providing temporary labor, (2) franchisors and franchisees, or (3) outsourcing companies that provide workers to businesses. When Company 1 exercises some control over the actions or work of Company 2’s employees, it raises the question as to whether the employees are actually working for Company 1 or Company 2 or both Company 1 and 2.

Consider, for example, a fast food franchisor who institutes training requirements for a franchisee’s cooks to ensure certain standards are met with regard to food preparation. Does providing training to cooks mean that the franchisor is liable as an employer if the franchisee doesn’t properly pay the cooks overtime?

Or consider a company that outsources all customer service call center workers to a staffing agency and allocates the responsibility for training, supervising, disciplining, and paying those workers to the staffing agency. If the call center employee faces discrimination at work, should the company or the staffing agency (or both) be liable to the employee for the discriminatory conduct?

Or consider a maintenance worker who provides services to an apartment complex for the benefit of the owners of the complex but who is hired by the company that contracted to provide property management services for the complex. If the maintenance worker is improperly terminated for taking medical leave, who should be responsible as the employer of the worker?

Answers to these questions have historically not been clear or consistent. In Salinas v. Commercial Interiors, Inc., the Fourth Circuit Court of Appeals noted that “courts have had difficulty developing a coherent test distinguishing ‘separate employment’ from ‘joint employment’ . . . [and] court’s attempts to distinguish separate employment from joint employment have spawned numerous multifactor balancing tests, none of which has achieved consensus support.”^[2]

Prior federal guidance

Under the Obama administration, the DOL took an expansive view of joint employer liability, and courts generally seemed more willing than not to find joint employer liability, even if there was no clear consensus among courts on the factors to consider.

Browning-Ferris (NLRB)

In 2015, the National Labor Relations Board (“NLRB”) issued Browning-Ferris Industries of California, Inc., 362 N.L.R.B. No. 186 (2015), which broadened the standard for assessing joint employer status under the National Labor Relations Act. For more than 30 years prior to 2015, the N.L.R.B. consistently maintained that a joint employer relationship existed only where “two separate entities share or codetermine those matters governing the essential terms and conditions of employment.”^[3] To support a joint employer finding, the N.L.R.B. required evidence that a potential joint employer “meaningfully affect[ed]” matters relating to the employment relationship and that its control over such matters was “direct and immediate.”^[4]

In 2015, the N.L.R.B. expressly overruled this extensive precedent, outlining a new, two-factor test for determining joint-employer status.^[5] Browning-Ferris, 362 N.L.R.B. No. 186. The NLRB’s new Browning-Ferris standard would evaluate: • Whether a common-law employment relationship exists; and

• Whether the putative joint employer “possesses sufficient control over employees’ essential terms and conditions of employment to permit meaningful bargaining.^[6]

In applying both prongs of the test, the N.L.R.B. announced it would no longer require “direct and immediate” control over workers to establish a joint employer relationship. Instead, it would consider both reserved and indirect control, such as through an intermediary or through contractual provisions that reserve the right to control, as potentially sufficient evidence to establish a joint-employer relationship, regardless of whether the right to control is ever exercised.^[7]

The new Browning-Ferris test was criticized by employer groups as vague and impractical. Under this test, a company could be liable as a joint employer if it had a right to exercise indirect control over an employee regardless of whether it ever exercised that right.

WHD

In 2016, the DOL Wage and Hour Division (“WHD”) published Administrator’s Interpretation No. 2016-1 providing guidance on joint employment under the Fair Labor Standards Act (“FLSA”) and Migrant Seasonal Agricultural Worker Protection Act (“MPSA”).^[8] In this 2016 guidance, the WHD noted that the joint employment analysis must look at both control and the “economic realities,” and the WHD concluded the following seven factors were relevant to this analysis: • Directing, controlling, or supervising the work performed;

• Controlling employment conditions;

• Permanency and duration of relationship;

• Repetitive and rote nature of work;

• Integral to business;

• Work performed on premises; and

• Performing administrative functions commonly performed by employees.^[9]

The WHD focused on the “economic dependence” of the workers in evaluating joint employer liability such as: “(1) use of the potential joint employer’s premises and equipment for the work; (2) whether the intermediary employer has a business than can and does shift from one joint employer for another, (3) whether the employee performs a discrete line-job that is integral to the potential joint employer’s production process, (4) whether the potential joint employer could pass responsibility for the work from one intermediary to the other without material changes for the employees; (5) the potential joint employer’s supervision of the employee’s...