Can a company disguise its control over a workforce through a myriad of affiliate companies? Apparently not. DIRECTV recently learned the hard way that its “web of agreements” revealed a joint employer relationship with its affiliates. These entities directly hired the field technicians responsible for installing and servicing DIRECTV’s satellites. The 4th Circuit panel, which included Judges Wynn, Floyd, and Harris, recently clarified in Marlon Hall v. DIRECTV, LLC, No. 15-1858 (argued Oct. 27, 2016). The proper test to determine if an employer could be held jointly and severally liable in a FLSA action as a joint employer.
The Plaintiffs in Hall claimed to be employees, not independent contractors, installing satellite television. Both the panel and the lower court agreed with this assessment. Plaintiffs were hired by affiliate companies based on DIRECTV’s requirements and background checks. Per the employee agreements, Plaintiffs’ work schedules were controlled by DIRECTV and they had to wear the company’s uniform. Further, DIRECTV was their primary, if not only, client.
Consequently, the Plaintiffs in Hall each brought a claim under FLSA against DIRECTV. Two of the plaintiffs, however, also brought an action against DirectSat as an affiliate and joint employer. These cases were transferred to and consolidated in the U.S. District Court for the District of Maryland. The district court dismissed the claims pursuant to a 12(b)(6) Motion holding that Plaintiffs failed to adequately allege that DIRECTV and DirectSat were joint employers. The Fourth Circuit panel reversed and remanded on substantive and procedural grounds.
1. Refer to the Regulations for Definitions
Although the Hall court acknowledged the confusion about the joint employer test derives from the 9th Circuit case, Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983), it voiced its surprise that the FLSA regulations’ definitions weren’t part of the lower court’s analysis.
The panel cited the “seemingly straightforward language” from the regulations. The definition for “separate employment” overcomes shared liability when “all the relevant facts establish that two or more employers are acting entirely independently of each other and are completely disassociated with respect to the” individual’s employment. On the other hand, “joint employment” exists when “employment by one employer is not completely disassociated from employment by the other employer(s).” Discovering that two entities are “not completely disassociated” guided the panel’s analysis as to whether the technicians had “one employment” when comparing their work for DirectSat and DIRECTV.
2. Analyze Joint Employment Relationship First
The Hall Court upheld the 4th Circuit analysis in Schultz v. Capital International Securities Inc., 466 F.3d 298 (4th Cir. 2006), and corrected the lower court’s misinterpretation of the decision. The lower court’s inversion of the Schultz test was enough to warrant a reversal. The Court remarks later, however, that the lower court also garnered a reversal for its procedural handling of 12(b)(6) motion. Addressing the two-part test for determining joint and several liability in FLSA claims, the Court reveals that the district court was incorrect to first question if the technicians were employees:
Under this framework, we first must determine whether the defendant and one or more additional entities shared, agreed to allocate responsibility for, or otherwise codetermined the key terms and conditions of the plaintiff’s work.
The second step of the analysis—which asks whether a worker was an employee or independent contractor for purposes of the FLSA—depends in large part upon the answer to the first step. Namely, if we determine that the defendant and another entity codetermined the key terms and conditions of the worker’s employment, then we must consider whether the two entities’ combined influence over the terms and conditions of the worker’s employment render the worker an employee as opposed to an independent contractor.
3. Adopt the Six-Factor Joint Employment Test
Next, the panel clarified the proper six-factor test to evaluate the existence of joint employment. This analysis stemmed from the panel’s recent ruling in Salinas v. Commercial Interiors, Inc., No. 15-1915, slip op. at 17–18 (argued Oct. 27, 2016).
To assist lower courts in determining whether the relationship between two entities gives rise to joint employment, we identified the following six, nonexhaustive factors to consider:
(1) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the ability 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.
4. Do Not Follow Bonnette in the 4th Circuit
The Hall Court joined other circuits in denouncing Bonnette’s four-part test because it relied too heavily on agency principles and thus was unduly focused on the economic dependence that the employee had on its employers. Instead, the panel clarified, the focus should center on the intent of FLSA: ensuring the protection of workers with unorthodox employment arrangements. Thus, in the joint employer analysis, the relationship between employers becomes the main issue.
5. Use the Lenient Test for Pleading FLSA Claims
Lastly, the Hall Court adopted a liberal approach to pleading FSLA claims. According to the panel, a plaintiff only needs to sufficiently allege that he or she worked 40 hours of work in a given week as well as some “uncompensated time in excess of the 40 hours.” Further, the standard only requires allegations cover at least one week. This lenient standard acknowledges that the defendants usually have most, if not all, of the evidence needed to ascertain exact hours worked. Thus, facts that nudge claims “from conceivable to plausible” support the broad protections of FLSA.
The Hall Court covered a lot of ground and crystalized the joint employer analysis for FLSA claims. This should lessen confusion, on both sides of the bar, in advising clients and confronting possible FLSA violations in the face of quirky employer relationships.