• Employers Beware! Subcontracting Without Joint Liability Just Became More Difficult
  • April 13, 2017 | Authors: Meredith Merry Campbell; John D. Clifford; Joy C. Einstein; Gregory D. Grant; Stacey L. Schwaber
  • Law Firm: Shulman, Rogers, Gandal, Pordy & Ecker, P.A. - Potomac Office
  • Last month, the Fourth Circuit Court of Appeals, in Salinas v. Commercial Interiors, Inc., established a new two-step framework for analyzing whether two entities are joint employers, making it easier for employers to be considered joint employers. As a reminder, if two entities, such as a general contractor and a subcontractor, are found to be joint employers, both entities could potentially be liable for wage payment violations.

    The new test is complicated, but the takeaway is that local courts are going to be more likely to hold the prime contractor responsible for a subsidiary’s bad acts. 

    The Court held joint employment exists when:
    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 first prong of the test focuses on the relationship between the alleged joint employers and whether they are “entirely independent” or “completely disassociated” from each other in relation to the workers' employment. Additionally, the first prong focuses on six other non-exclusive factors including:
    1. Whether, either formally or as a matter of practice, the alleged joint employers jointly determine, share or allocate the power to direct, control or supervise the worker, whether by direct or indirect means;
    2. Whether, either formally or as a matter of practice, the alleged joint employers jointly determine share, or allocate the power directly or indirectly to 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 relationships between the alleged joint employers;
    4. Whether, either through shared management or a direct or indirect ownership interest, one alleged joint employer controls, is controlled by or is under common control of the other alleged joint employer;
    5. Whether the work is performed on premises owned or controlled by one or more of the alleged joint employers, independently or in connection with one another and
    6. Whether, either formally or as a matter of practice, the alleged 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 facilities, equipment, tools, or materials necessary to complete the work.
    The second prong of the test looks to whether the workers are economically dependent on the employer.

    Based on this case and the broad approach to joint employment taken by the Department of Labor under the previous Administration, employers in Maryland, Virginia and D.C. should review their contracts with subcontractors, taking special notice of any indemnification agreements and ensuring there are no potential FLSA wage and hour violations.