Reprinted as appeared in the July 2017 issue of Properties Magazine
Distance Yourself: Avoiding Joint Employer Liability
Safety, discrimination and harassment, wage and overtime payments, unions and collective bargaining—today’s employer has enough to worry about in managing its own workforce. But how would you like to be responsible for another company’s employment liabilities as well? Under the so-called “joint-employer doctrine,” that nightmare can come true, and it is especially prevalent in subcontractor and temporary employment arrangements.
Fortunately, that scenario may be rendered less likely thanks to new Department of Labor (DOL) Secretary Alex Acosta’s decision, on June 7, 2017, to revoke the DOL’s expanded interpretation of the joint employment relationship. An employer can only take advantage of this decision, however, if it already has proper safeguards in place. This primarily requires limiting the manner by which it controls the other company’s employees.
I. Joint Employment Relationship and Why It Matters
Put simply, a joint employment relationship exists when one employer (the “primary”) is so related to another employer (the “secondary”) that employees of the secondary are also deemed employees of the primary. The general contractor/subcontractor relationship is one common example where this is prevalent. It is also prevalent in the relationship between a contractor and temporary staffing agency.
The main consequence of a joint employment relationship is that the primary employer is held responsible for the secondary employer’s employment liabilities. Here are some examples.
1. Wage and Hour Violations. Under the Fair Labor Standards Act, a primary employer may be held liable for the secondary employer’s failure to pay minimum wages or overtime. Similarly, on publicly funded projects, a primary may be liable for a secondary’s failure to pay prevailing wages. Unfortunately, that obligation exists regardless of joint employer status, as the Davis-Bacon and Service Contract Acts already require federal contractors to certify that their subcontractors are complying with the respective statutory requirements.
2. Employment Discrimination and Harassment. Under various federal and state anti-discrimination statutes a primary can be held liable if the secondary unlawfully terminates or harasses one of its own employees on account of a protected characteristic (e.g., age, race, sex, disability, religion).
3. Family and Medical Leave Act (FMLA) Obligations. While a primary may have sufficiently few employees to avoid FMLA obligations (fewer than 50 in a 75 mile radius), joint employers may both be subject to the FMLA if their combined workforce is sufficiently large. Additionally, a primary may be liable for a secondary’s failure to comply with its existing FMLA obligations.
4. Union obligations and collective bargaining. Under the National Labor Relations Act, a joint employer finding can result in a primary being held responsible for unfair labor practices committed by the secondary, or being required to comply with secondary’s collective bargaining contract. Additionally, when a secondary’s employees are involved in a labor dispute, a joint employer finding can forfeit the primary’s right to avoid pickets and boycotting.
5. Safety Violations. Under OSHA’s multi-employer policy, an employer can already be cited for hazards to other employers’ employees if OSHA finds that the employer controls the hazard or is responsible for creating it. However, a joint employer finding could render a primary liable for the secondary’s safety violations on a separate worksite. Additionally, even in the absence of employer fault, a joint employer could incur workers’ compensation liability for a secondary employee who gets injured on the jobsite.
II. Are You A Joint Employer?
There is no single set of criteria for determining joint employer status, as the tests vary among statutes and across jurisdictions. By far, though, the most important factor is the right of control. Generally, a primary will be deemed a secondary’s joint employer where the primary has “direct and immediate control” over another company’s employees.
Key factors in making this determination are whether the primary (i) hires or otherwise selects the workers, or has input into the selection process; (ii) pays the workers or determines their compensation; (iii) directs the workers’ day-to-day activities, sets schedules or supervises performance; or (iv) has the authority to discipline the workers, enforce workplace rules or terminate the workers’ employment.
In recent years, the DOL has sought to expand joint employment liability by decreasing the level of control a primary must exercise over the secondary employer’s employees. In a 2015 administration interpretation, the DOL asserted that the control need not be direct, but could also be “indirect” or potential. Fortunately, on June 7, 2017, new DOL Secretary of Labor revoked that interpretation. This is good news, but to avoid joint employer liability, employers must still have proper safeguards in place to regulate how they control and direct the secondary’s employees.
III. Minimizing Joint Employer Liability
The first step to avoiding joint employer liability is having proper safeguards in the subcontract or staffing agreement. The agreement should include representations that the secondary, among other things: (1) will comply with all employment laws and will indemnify the primary for violations; (2) is solely responsible for all required training, including safety training; (3) is solely responsible for all recruiting, pre-employment screening and testing, providing personnel policies, maintaining personnel records and files, paying wages and benefits, maintaining insurance coverage, and withholding taxes; and (4) is solely responsible for hiring, setting schedules, directing day-to-day activities, conducting performance management, and imposing discipline and termination. Additionally, the agreement should be for a limited duration or scope (e.g., a single project).
The limitations in the agreement must also be followed in practice. This requires developing procedures governing how the primary’s managers and supervisors deal with the secondary’s employees. When a safety violation occurs, for example, it may be appropriate for the primary’s supervisor to remove the employee from the jobsite, but not discipline him. Similarly, it is appropriate for a primary to put “quality control” measures in place to ensure that work is done according to specifications, but it is not appropriate to specifically direct the workers’ activities, i.e., the means and methods by which the work is accomplished. Supervisors and managers must be trained and educated on how to accomplish this. And perhaps the best way to protect against the consequences of potential joint employer liability is ensuring that subcontractors or staffing agencies also understand and comply with their legal obligations to their employees.