Many businesses today use other entities to provide employees for their business operations. This type of structure is often viewed as a good way for a company to avoid many of the pitfalls of being an employer under state and federal laws. A recent court ruling has redefined what it means to be a joint employer and may cause companies to change their model or simply decide to be the employer of record.
In a recent ruling by the United States Court of Appeals for the Fourth Circuit, the Court of Appeals established a new six-factor test to determine whether or not two entities should be considered joint employers under the Fair Labor Standards Act. This new test is different than other jurisdictions and may be a signal the court view of joint employer status is changing and not in a good way.
In the decision in Salinas v. Commercial Interiors, Inc. (2017 WL 360542), the Fourth Circuit Court of Appeals established a new test for joint employer status where “(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 Court went on to set forth six factors that should be considered when applying the test of whether two or more entities are joint employers. The factors are the following:
“(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.”
This test is not that different from other court rulings, but it recognizes a more broad interpretation of joint employment. My fear is that this is a huge signal from the courts that joint employer status is going to be liberally construed going forward. Employers must be careful when thinking about their potential claim that they are not in a joint employer relationship with another organization.