Employers Beware! Subcontracting Without Joint Liability Just Became More Difficult
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:
- 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
- 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:
- 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;
- 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;
- The degree of permanency and duration of the relationships between the alleged joint employers;
- 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;
- 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
- 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.
DC Mayor Takes Steps to Limit Employer Use of Employee Credit Information
Last month, D.C. Mayor Muriel Bowser signed the Fair Credit in Employment Amendment Act of 2016 (“the Act”), which amends the D.C. Human Rights Act of 1977. This Act prohibits employers from discriminating against current and prospective employees based on their credit information. Employers can no longer request credit information from current employees or applicants unless the job fits within a limited set of exceptions, including:
- Where the employer is required by District law to request the information;
- Where an individual is applying for a position as or is employed as a police officer with the Metropolitan Police Department, as a special police officer or campus officer;
- Where the individual is applying or is employed by the Office of the Chief Financial Officer of the District of Columbia;
- Where an employee is required to possess a security clearance under the law;
- Where the information is disclosed to the Board of Ethics and Government Accountability or Office of the Inspector General;
- To financial institutions where the position involves access to personal financial information or
- Where an employer requests or receives credit information per a lawful subpoena, court order or law enforcement investigation.
The Act is now before the US Congress for a 30-day review process. If approved, D.C. will join a list of at least 11 jurisdictions which have similar protections. While awaiting Congressional approval on the Act, employers should review their employment practices and application materials to ensure they are not unlawfully collecting or using employee or applicant credit information. We will provide you with an update as soon as the law becomes effective.
The contents of this Alert are for informational purposes only, and do not constitute legal advice. If you have any questions about this Alert, please contact a member of the Shulman Rogers Employment and Labor Law Group or the Shulman Rogers attorney with whom you regularly work.
Gregory D. Grant
Meredith “Merry” Campbell
Joy C. Einstein
Stacey L. Schwaber