4th Circuit Gives Guidance on Joint Employment in Overtime Cases

The Fourth Circuit issued a recent opinion which provides important guidance for joint employment in overtime cases.  In Hall v. DIRECTTV, 846 F.3d 757 (4th Cir. 2017), the Fourth Circuit considered an appeal by plaintiffs in two consolidated cases.  In each case, the plaintiffs were satellite television technicians who sued DIRECTTV and DirectSat, alleging that DIRECTTV and DirectSat were jointly and severally liable for unpaid overtime because they jointly employed the plaintiffs.  Plaintiffs further alleged that they were misclassified by their employer or employers as an independent contractor and denied overtime pay under the FLSA and various state statutes.  The district court had granted the defendants’ motions to dismiss, holding that the plaintiffs failed to state a claim for joint employment.

The Fourth Circuit began its analysis by providing the standard two-step framework for determining whether a defendant is liable for an alleged FLSA violation under the joint employment theory:

Under this framework, we first must determine whether the defendant and one or more additional entities shared, agreed to allocate responsibility for, or otherwise codetermined the key terms and conditions of the plaintiff’s work. The second step of the analysis — which asks whether a worker was an employee or independent contractor for purposes of the FLSA — depends in large part upon the answer to the first step. Namely, if we determine that the defendant and another entity codetermined the key terms and conditions of the worker’s employment, then we must consider whether the two entities’ combined influence over the terms and conditions of the worker’s employment render the worker an employee as opposed to an independent contractor. By contrast, if the two entities are disassociated with regard to the key terms and conditions of the worker’s employment, we must consider whether the worker is an employee or independent contractor with regard to each putative employer separately.  The appellate court held that the district court erred by considering the employee/independent contractor issue without first determining whether a joint employment relationship existed between DIRECTTV and DirectSat.

 

Turning to the joint employment issue, the court articulated six “nonexhaustive” factors which are to be considered when making this assessment:

(1) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the ability 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.

The court emphasized that none of these factors are determinative of the joint employment issue, going so far as to state that “the absence of a single factor–or even a majority of factors–is not determinative of whether joint employment does or does not exist.”  The Fourth Circuit held that the district court “ignored important elements of coordination between Defendants, as well as many of Defendant’s shared levers of influence over Plaintiffs’ work as DIRECTTV technicians.”  Importantly, the Fourth Circuit also stated that “the FLSA does not require that an entity have unchecked — or even primary — authority over all — or even most — aspects of a worker’s employment for the entity to qualify as a joint employer. Rather, the entity must only play a role in establishing the key terms and conditions of the worker’s employment.”  (Id. at 770) (emphasis added).  The Court further found that bad faith (i.e. an intent to evade FLSA liability) –  while strong evidence of FLSA liability – is not a required precondition to liability as a joint employer.  The Court concluded that the plaintiffs had adequately alleged that DIRECTTV and DirectSat were their joint employers and that the district court had erred in dismissing the plaintiffs’ claims for unpaid overtime.

The Hall case is important because of its emphasis on the nonexclusive nature of the factors used to consider joint employment.  The Fourth Circuit has correctly recognized that a company may exert its influence over a worker or group of workers to such an extent that it controls the worker’s conditions of employment without satisfying the remaining factors that are typically considered under the joint employment analysis.

It is this author’s experience that the arrangement described in the Hall case is being increasingly utilized by large companies in an effort to avoid FLSA liability – and other legal obligations.  In such a scenario, the large company – call it “Company A” – would enter into an exclusive or near-exclusive staffing arrangement with a smaller company – “Company B” – which in turn would hire a number of “independent contractors.”  These “independent contractors” would work exclusively or nearly exclusively for Company A – which would assign them work and tell them when, where and how to do their jobs.  Company A would pay Company B a daily rate or some other agreed-upon flat fee for each worker, thus avoiding the overtime or minimum wage requirements of the FLSA or similar state laws (as well as other pesky expenses such as the employer’s share of Social Security and Medicare taxes, employee benefits, unemployment compensation taxes and worker’s compensation insurance).  Company B would then pay the workers a day rate or flat hourly rate because they are classified as “independent contractors.”  In this scenario, Company A is typically one of only a few – if not the only – client of Company B, and thus Company B is highly dependent on Company A.  Because Company B “hired” the worker and handles the payroll and other administrative matters that are typically handled by a traditional employer, a court applying the six factors used in assessing joint employment might – if it merely looked at whether all or a majority of them were satisfied by Company A – conclude that Company A was not a joint employer of the workers.  However, the Hall decision correctly recognizes that if Company A plays a key role in establishing the terms and conditions of the workers’ employment, it should be considered to be a joint employer and share in FLSA liability.  The critical lesson from Hall is that companies that disguise their control over workers through third parties cannot shield themselves from FLSA liability.