By Jennifer Cotner

On January 25, 2017, the 4th Circuit U.S. Court of Appeals issued two game-changing companion decisions impacting the test for determining joint and several liability under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§201, et seq., for joint employers.

Salinas, et al. v. Commercial Interiors, Inc., et al., No. 15-1915

In Salinas, the plaintiffs were employees of J.I. General Contractors, Inc. (“J.I.”), a drywall installation contractor.  Plaintiff sued J.I. and Commercial Interiors, Inc. – a company offering general contracting and interior finishing services, including drywall installation – in this putative collective action as joint employers, alleging violations of the FLSA and Maryland law.  The U.S. District Court of Maryland granted summary judgment to Commercial, holding that it did not jointly employ plaintiffs because J.I. and Commercial Interiors were in a traditional contractor-subcontractor relationship not intended to evade compliance with the FLSA.

The 4th Circuit reversed and pronounced a new test to determine whether entities constitute joint employers under the FLSA:

when (1) two or more persons or entitles 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 work an employee as opposed to an independent contractor.

The effect of joint employer status under the FLSA is that both employers are responsible, jointly and severally, for compliance with all provisions of the FLSA, and a worker’s employment by joint employers is treated as “one employment” for purposes of compliance with the FLSA, including, notably, aggregating hours worked for each employer to determine whether and to what extent the individual is entitled to overtime.

The 4th Circuit specifically rejected the test used by the district court, a modified form of a widely-used test first pronounced in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983).  In Bonnette, the 9th Circuit set forth four, nonexclusive factors for determining whether employers are joint: “whether the employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.”

The Court found the Bonnette test to be too narrowly focused on the relationship between the employee and the putative joint employer, rather than between the putative joint employers, and relied too heavily on the issue of whether the employee is “economically dependent” upon the putative joint employer.  The Court, citing 29 C.F.R. § 791.2(a), instructed courts to also focus on the issue of whether the two putative joint employers are “entirely independent” or “non completely dissociated” with regard to the “essential terms and conditions that govern a worker’s employment.”  “In other words, Bonnette and its progeny do not squarely address the ‘joint’ element of the ‘joint employer’ doctrine.”  In determining whether entities or persons are “not completely disassociated” with respect to a worker such that they codetermine the essential terms and conditions of the employee’s performance, courts should consider this non-exhaustive list of factors:

(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.

Note, however, that the Court was quick to point out this list is not exhaustive, nor is it a matter of adding up the factors and seeing which side has the most elements. Joint employment should be decided based upon the “circumstances of the whole activity.”

Marlon Hall, et al. v. DIRECTV, LLC, et al., Nos. 15- 1857 and 15-1858

Hall is a result of two consolidated lawsuits against DIRECTV and a company called DirectSat, brought by satellite television technicians, alleging that the companies were joint employers and therefore jointly and severally liable for any violations of the FLSA.  Plaintiffs alleged that they regularly worked in excess of 40 hours a week without receiving overtime pay.  Defendant DirectSat is one of DIRECTV’s  “Home Service Providers” in its “Provider Network,” which acts as an intermediary between DIRECTV and individual technicians who service DIRECTV equipment. The U.S. District Court of Maryland dismissed the complaint on Defendants’ Motion to Dismiss under Rule 12(b)(6), holding that DIRECTV and DirectSat are not joint employers under the four-part test initially set out the 9th Circuit’s Bonnette decision.

The 4th Circuit reversed the dismissal for two reasons: (1) the district applied an improper test for determining whether entities constitute joint employers for purposes of the FLSA; and (2) the district court misapplied the plausibility standard set forth in Twombly and Iqbal by subjecting plaintiffs to evidentiary burdens inapplicable at the pleading state and by failing to credit plaintiffs’ allegations of defendants’ control and oversight of their work.  Applying the new test pronounced in Salinas, the court found that, at this stage in the litigation, plaintiffs’ allegations were “sufficient to make out a plausible claim that DirectSat was ‘not completely disassociated’ from DIRECTV and other service providers with regard to setting the essential conditions under which Plaintiffs Lewis and Wood worked in their capacities as DIRECTV technicians.”   The 4th Circuit also emphasized that the issue of joint employment “depends on all the facts in the particular case,” and that a showing of bad faith intent to avoid employer liability under the FLSA is not required.

In both Hall and Salinas, the alleged joint employer was the other defendant’s primary, or only client, supervised employees and assigned their work, required them to wear defendant’s apparel and logos, and required specialized equipment, training and certifications, among other things.

Both opinions are designated for publication.