Fourth Circuit Adopts New FLSA Joint Employer Test

On January 25, 2017, the U.S. Court of Appeals for the Fourth Circuit* adopted a new six-factor test to determine whether two or more entities are joint employers under the Fair Labor Standards Act (“FLSA”).  Salinas v. Commercial Interiors Inc., No. 15-1915, ___ F.3d ___, 2017 WL 360542 (4th Cir. Jan. 25. 2017).  Different from other circuits, the new standard seems to be less favorable to employers by expanding FLSA joint employer liability. The new test distinguishes the joint employer analysis from the separate independent contractor versus employee analysis, which other circuit courts have blurred. It focuses on the relationship between the putative joint employers and significantly discerns that “two entities that do not individually employ a worker within the meaning of the FLSA may still have to comply with the FLSA if their combined influence over the essential terms and conditions of the worker’s activities gives rise to an employer-employee relationship.””

The Fourth Circuit adopted a two-step framework for analyzing FLSA joint employment claims, which finds joint employment status where: (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.  The Court of Appeals also established the following six factors for district courts to consider when applying the test:

(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 appeals court cautioned that the above list is not exhaustive, no one factor is dispositive, and the determination must consider the facts and circumstances of the whole activity. This comprehensive approach is more inclusive than the “economic realities” and similar joint employment tests and is consistent with the DOL regulations.

What does this mean for employers? If you’ve subcontracted out services to another entity who employs an individual, you may be jointly responsible with the subcontractor for complying with the wage and hour laws (and you could be on the on the hook for any wage and overtime violations) covering that employee. To help defend against a finding of joint employer liability under this broad standard, businesses should evaluate their wage and hour practices and those of contractors, subcontractors, staffing firms, professional employer organizations and anyone else with whom they share workers to ensure that they are complying with applicable wage and hour laws.

*The Fourth Circuit has jurisdiction over appeals from federal courts located in Maryland, Virginia, North Carolina, South Carolina, and West Virginia.

Learn more in this National Law Review article.