Fourth Circuit announces new “joint employer” FLSA test
The U.S. Court of Appeals for the Fourth Circuit has issued a pair of decisions establishing a new test for identifying “joint employers” under the Fair Labor Standards Act. No. 151915.P, Salinas v. Commercial Interiors, Inc., and No. 151857.P, Hall v. DIRECTV, LLC, both decided January 25, 2017. All federal District Courts in the Fourth Circuit – Virginia, West Virginia, North and South Carolina, and Maryland – must now apply what we will call the Salinas test.
Joint employer questions typically arise in contractor-subcontractor, parent-subsidiary, and employment referral agency contexts, among others. A finding that a company is a joint employer of another company’s employees has at least two important consequences: (1) hours worked by an employee for both employers are added together to determine whether the employee has reached the 40-hour work week threshold requiring overtime pay; and (2) each of the “joint employers” is jointly and severally liable for the full amount of the employee’s compensation, a factor that is especially important if one of the joint employers is insolvent.
The Salinas test asks whether the two entities are “‘completely disassociated’ with regard to the essential terms and conditions that govern a worker’s employment.” Stated otherwise (in the language of a federal regulation), the question is whether two or more employers act “entirely independently of each other.” The test is more stringent than those applied to identify joint employers under other federal laws, such as Title VII, or state common law. It consists of six “nonexhaustive” factors (meaning that if other “factors speak to the fundamental threshold question … – 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 six factors are:
(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.
This is not a “balancing” test. “[O]ne factor alone can serve as the basis for finding that two or more persons or entities are ‘not completely disassociated” with respect to a worker’s employment” if each has “a substantial role in determining the essential terms and conditions” of employment.
The Salinas test will now be applied retroactively, in the sense that it will govern future decisions regardless of when the events at issue occurred. With a two year statute of limitations under the FLSA, businesses may find themselves liable under this new test for events that occurred several years in the past.
Please contact Jeremy Capps, at 804-762-8030 or firstname.lastname@example.org, or George Somerville, at 804-622-1159 or at email@example.com, if you have questions or if we may assist you with this or any other employment law issue.