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In a decision published January 25, 2017, a Fourth Circuit Court of Appeals panel revived a collective action in which a group of drywall installers sought overtime wages from the contractor who hired their employer – the subcontractor.  The outcome is a new circuit wide test for determining whether a joint employer relationship exists.

The appeal came as a result of a lower court’s summary judgment decision, finding general contractor Commercial Interiors Inc. liable for wages because it jointly employed the drywall installers who worked for the hired subcontractor, J.I. General Contractors.  According to the Appeals Court, the legally recognized contractor-subcontractor relationship between the companies did not excuse the general contractor from liability since its control over workers made it an employer under the Fair Labor Standards Act.

Prior to its January 25 decision, the Fourth Circuit had not yet established a test for determining whether a joint employer relationship exists.  Under the new rule, entities are joint employers when they agree to share employees, when one employer acts in the best interest of the other, or when one employer controls the other.  Each of these three scenarios focuses on the relationship between the putative joint employers, which turns on the relative association or disassociation between entities with respect to establishing essential terms and conditions of a worker’s employment.  Absent being entirely disassociated with each other, the test carries a strong presumption in favor of finding a joint employer relationship.

In making its decision to reverse the trial court’s decision, the panel found the lower court’s joint employer test too narrow, saying it supported a finding of a joint employer relationship only when there was abuse or bad-faith. The panel found that in consideration of the broad intent of the FLSA, the Fourth Circuit’s new test will correctly focus on the relationship between employers and how that impacts their relationship with employees. Ultimately, the Fourth Circuit decision means that a company choosing to subcontract with another entity will have to be more careful in the contracts it enters, since it risks being liable to that entity’s workers under a theory of joint employment.

While this decision controls the Fourth Circuit and follows the lead of the Obama Administration, it will be interesting to see how the new administration effects these decisions.  We suspect the Trump Administration will use its influence to narrow the joint employer decisions, whether they involved Wage and Hour laws, the National Labor Relations Act, the EEOC and/or any other federal agencies/laws.  Time will tell.

Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.