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When does someone else’s employee become your employee?

More on Employment Law in Virginia

By Terrence O’Connor and Stephanie Wilson

nurse_mainAlthough the Bible tells us that “No man can serve two masters,” judges may disagree. Judges are increasing­ly ruling that, in some instances, a subcontractor’s employee can have two masters – the subcon­tractor and the prime contractor – under what is known as the “joint employment” legal doctrine.

Virginia employers must deal with the expanding impact of the joint employ­ment doctrine, as the doctrine affects all levels of contracting and subcontracting with respect to a wide range of federal and state workplace laws. Contractors and subcontractors at any tier must con­front the reality that a company may be liable for the way its supervisors treat another company’s employees, including putative “independent contractors.”

Obama set wheels in motion

Under President Obama, the Depart­ment of Labor issued legal guidance ex­panding the definitions of employee and employer. First, in July 2015, the DOL broadened the definition of “employee,” such that “employee” included nearly all putative independent contractors. DOL issued a Fair Labor Standards Act Ad­ministrator Interpretation. This Admin­istrator Interpretation stated that the focus when determining FLSA applica­bility is on the economic realities of the employee-employer relationship – that is, “whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).” Given the broad statutory definition of “employ” under the FLSA, the DOL concluded in 2015 Administra­tive Interpretation that most workers are economically dependent on their employer and thus do not qualify as in­dependent contractors who are truly in business for themselves.

Second, in July 2016, the DOL issued an Administrative Interpretation that expanded the way an employee could have “joint employers.” DOL identified two types of joint employment: “horizon­tal” and “vertical” joint employment.

In a horizontal joint employment re­lationship, the employee works for two or more employers that “are sufficiently associated or related with respect to the employee such that they jointly employ the employee.” Consider a waiter who works for two separate restaurants that are owned by the same entity. In this scenario, the hours the employee worked for each restaurant are aggregated and considered as a single employment for the purposes of calculating overtime under the FLSA. Thus, the focus here is on the relationship between the two restaurants rather than the relationship between the waiter and each individual restaurant.

Conversely, when determining wheth­er a vertical joint employment relation­ship exists, the focus is on the connection between the employee and the potential joint employer. Think a staffing compa­ny that has a subcontract with a hospi­tal and that staffing company employs a nurse. The more the hospital controls the staffing company’s employee, par­ticularly with respect to duties, wages, and discipline, the more likely one will consider the hospital an employer of the nurse under the vertical joint employ­ment doctrine.

But has Trump applied brakes?

The Trump administration reversed the DOL’s expansion of the definition of employment when it recently with­drew the 2015 and 2016 Administrative Interpretations. The withdrawal was conducted via a short three sentence an­nouncement that, in effect, repealed but did not replace this guidance; rather DOL reverted to long-standing regulations and case law. This action likely demonstrates current Labor Secretary Alexander Acos­ta’s stated preference for the common law “control test” that previously had been used to analyze joint employment issues. Fewer findings of joint employment will likely result under the Trump admin­istration’s “control test” than under the Obama administration’s “economic reali­ties test.” DOL has confirmed that the re­scission of these Administrative Interpre­tations does not change employers’ legal responsibilities under the FLSA.

The state of the joint employer doc­trine continues to remain in flux. DOL’s recent actions do not resolve conflicting interpretations regarding joint employ­ment and independent contractor status under state laws, nor does it impact the National Labor Relations Board’s use of its expansive definition of joint employer status. In a recent decision, the Fourth Circuit reasoned that subcontract lan­guage trying to establish the indepen­dence of the two contractors was of mini­mal consequence in determining whether joint employment existed, and held that such language will not necessarily defeat a finding of joint employment.

What should employers do?

Thus, it is important for contractors to take additional steps beyond relying on subcontract boilerplate. There are several risk-mitigation measures that contractors and subcontractors alike can take to mitigate or avoid liability under the joint employment doctrine.

(1) Training. Companies should ex­pand supervisor training to ensure the training covers how supervisors are re­sponsible to non-employees. Supervisors are at the heart of a company’s efforts to prevent workplace sexual harassment and discrimination. Because companies presumably already train their supervi­sors to prevent sexual harassment and discrimination, it should be no great ef­fort to require supervisors to extend this to the treatment of a subcontractor’s em­ployees.

(2) Insurance. Companies should consider obtaining employment practic­es liability insurance that covers both employees and those working under their control. EPLI covers a wide range of wrongful workplace activities includ­ing wrongful termination, discrimina­tion, and sexual harassment.

(3) Indemnification. Companies should carefully review and make sure that the indemnification provisions in their subcontracts cover not just rec­ognized employees but also those who might claim to be employees. Aside from being long, ridiculously com­pound, and in need of punctuation – or perhaps because of these characteris­tics – indemnification clauses often get ignored in the subcontract negotiation process. Careful drafting of an indem­nification provision, however, has nu­merous benefits. The indemnification provision should provide that the di­rectly responsible party will indemnify the other party should it be found liable under the joint employer doctrine. The indemnification provision should also al­low the recovery of attorneys’ fees for the indemnified party.

Bottom Line

Despite the DOL’s recent rescission of Obama-era legal guidance expanding the definition of employment, the joint employment doctrine in some form is here to stay. A contractor or subcontrac­tor at any tier must deal with the risks that the joint employment doctrine pres­ents. By taking the three steps above, a contractor or subcontractor can take the preferred approach of dealing with this issue proactively, rather than litigating these problems in court.

oconnor_hedTerrence O’Connor, LL.M.,

is a partner and Director of Government Contracts at Berenzweig Leonard. He has practiced government contract law for over 45 years. After 15 years as a federal attorney, he entered private practice prosecuting contractor claims before the U.S. Court of Appeals for the Federal Cir­cuit, the U.S. Court of Federal Claims and the various Boards of Contract Appeals. He has also prosecuted government contract protests before the Government Accountability Office and the COFC. While in private practice, he also continued to work with contracting officers and government procurement professionals as a government contracts instructor for Management Concepts, Inc. Since 1984, Terry has been teaching government contracts law to contracting officers, contract specialists and other government procurement professionals. He can be reached at toconnor@berenzweiglaw.com or (703) 760-0626.

wilson_feaStephanie Wilson

is a partner and Co-Di­rector of Government Contracts at Berenzweig Leon­ard, and is a former law clerk for Judge Lawrence M. Baskir of the U.S. Court of Federal Claims. Stephanie represents government contractors of all sizes in bid protest and claims litigation before the U.S. Court of Federal Claims, U.S. Government Accountability Office, Boards of Contract Appeals, and federal agencies. She advises government contractors on a variety of matters such as Service Contract Act compliance, subcontract­ing and teaming issues, FAR compliance, suspensions and debarments, and general business and employ­ment issues. Stephanie also represents corporate clients and executives on a va­riety of business and employment related matters, including Fair Labor Standards Act claims, non-compete disputes, breach of contract claims, and other business disputes and transactional matters. Stephanie has been selected as a “Super Law­yers Rising Star” for 2015-2017 in the field of government contracts. She can be reached at swilson@berenzweiglaw.com or (703) 760-0485.

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