From Lexology, Holland & Hart discuss the Supreme Court’s decision to not review the test determining when two employers are considered joint employers. They discuss the 4th Circuits’ broad approach and contrast it with the economic realities test taken by other jurisdictions. They write:
Fourth Circuit Court Takes Expansive Approach
On appeal, a Fourth Circuit panel reversed, concluding that the technicians had alleged sufficient facts based on a more lenient standard for joint employment. Disregarding the approach in other jurisdictions, the Hall court held that the focus for joint employment should not be on each employment relationship as it exists between the worker and the party asserted to be a joint employer. Rather, relying on a particular DOL regulation, the court said the appropriate analysis is whether the two putative joint employers are “not completely disassociated” with respect to the worker. Accordingly, the Hall approach involves a “two-step framework” where the court (1) determines whether the two putative employers “codetermined the key terms and conditions of a worker’s employment” and (2) if the answer is yes to the first inquiry, the court then asks whether “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 Hall “not completely dissociated” standard is at odds with the majority approach in eight other circuits and trial courts in Colorado (although no Tenth Circuit case has addressed this issue) which follow the “economic realities” test for joint employment – a direct examination of the employment relationship as it exists between the worker and each putative employer. Courts apply different and varying factors in applying the economic realities analysis across the United States, weighing as many as ten different factors such as the power to hire and fire workers, the permanence of the working relationship, and control over work schedules, payroll, benefits, and employment records. The overarching concern is whether the alleged employer possesses direct or indirect power to control significant aspects of the worker’s employment.
Given the Fourth Circuit’s departure from the majority approach, DirecTV appeared to have a good chance at getting the Supreme Court to take up the joint-employer issue, but the Court denied review. That lets the Fourth Circuit’s decision stand, leading to a much lower bar for plaintiffs in the Fourth Circuit.
Importance of Certainty in Joint-Employer Determination
Franchisors, contractors, subcontractors, affiliated businesses, staffing agencies, and PEOs all face increased liability when there are different joint employer standards for FLSA purposes depending on the jurisdiction. First, these types of entities and their attorneys need to be aware that the Fourth Circuit’s broad joint-employer test is still the law in Maryland, Virginia, West Virginia, North Carolina, and South Carolina. It also will be used by plaintiffs’ attorneys in other circuits to fuel claims of joint employment even when there is no direct control over workers by the putative employer.
Second, it makes it very difficult for entities that operate in numerous jurisdictions to have uniform agreements. Franchisors, contractors, staffing agencies, and other affected entities may need to draft their business agreements to minimize the risk of finding joint-employer status as dictated by the joint employer test in each location. Such entities should consider including provisions to show that the entities are separate and distinct as they relate to the terms and conditions of employment, avoiding control over hiring and firing decisions, setting pay, and directing the day-to-day duties of those workers. In addition, related entities should avoid sharing managers, employment policies, HR administration, health insurance and other benefit plans, workers’ compensation insurance, and other workplace-related matters.
Finally, employers who benefit by work being done by employees of another entity need to instruct their own personnel on how to avoid exerting the type of direct control that can lead to a finding of joint employment. The most ironclad agreement won’t be worth the paper it is written on if the workers are treated like direct employees by those in charge of the operation.
Read the full story at Supreme Court Denies Review of FLSA Joint-Employer Test