From JDSupra, H. Arthur Bolick II, John Ormand III discuss a recent case in which a general contractor was held to be a joint employer with its subcontractor. Employers should be aware that not only if they hire an independent contractor, might the independent contractor be misclassified and considered to be their employee, if they hire a subcontractor, the subcontractor’s employees might be considered to be their employees also. This decision reinforces the importance for a company to manage its relationships with independent contractors and subcontractors to avoid having them or their employees be considered the company’s employees. Arthur and John write:
In Salinas v. Commercial Interiors, Inc. and J.I. General Contractors, Inc., No. 15-1915 (4th Cir. Jan. 25, 2017), the Fourth Circuit held that a general contractor, Commercial Interiors, Inc. (“Commercial”) and one of its subcontractors, J.I. General Contractors, Inc. (“J.I.”), were “joint employers,” creating possible liability on the part of Commercial to J.I.’s employees[2] for J.I.’s failure to comply with overtime requirements of the FLSA. Although the court dismissed the notion that the decision would render the independent contractor concept meaningless in the construction context, all general contractors and first tier subcontractors should take heed of the Salinas decision and recognize that they now are potentially exposed to liability for FLSA violations committed by their subcontractors, at least where they exercise significant influence over the subcontractor and its employees.
The court was careful to point out that a finding that two entities are “joint employers” for FLSA purposes does not automatically mean they are joint employers in other legal contexts. Id. at 37. For example, a finding that a general contractor and subcontractor are “joint employers” under the FLSA does not automatically lead to a conclusion that the general contractor can be held liable for the subcontractor’s negligence. Nevertheless, the Salinas decision will have a significant impact on the structure of contractor–subcontractor relationships going forward.
The facts of the case as alleged by the J.I. employees[3] show that J.I., a framing and drywall installation subcontractor, worked almost exclusively for Commercial, a general contractor. Although J.I. did work for one other general contractor during its existence, it did so only when Commercial had no work available for J.I. In finding that Commercial and J.I. could be joint employers for FLSA purposes, the Fourth Circuit focused on various aspects of the relationship between Commercial and J.I., many of which are typical across the construction industry between general contractors and subcontractors. In particular, the court focused on the following:
- Commercial provided the tools, materials and equipment necessary for J.I. employees’ work;
- Commercial actively supervised J.I. employees’ work on a daily basis by having foremen walk the jobsite and check their progress;
- Commercial required J.I. employees to attend frequent meetings regarding their assigned tasks and safety protocols;
- Commercial required J.I. employees to sign in and out with Commercial foremen upon reporting to and leaving the jobsite each day;
- Commercial foreman frequently directed J.I. employees, through the J.I. foremen, to redo deficient work;
- Commercial communicated its staffing needs to J.I., and J.I. based specific jobsite assignments on Commercial’s needs; and
- When J.I. performed certain “time and materials” work for Commercial and was paid on an hourly, rather than lump sum, basis, Commercial told J.I. how many of its employees to send to the project and how many hours those employees were permitted to work.
Salinas at 41-42. To be sure, there were other, perhaps more unique, facts the court considered that were problematic for Commercial. In particular, Commercial provided J.I.’s employees with hardhats, vests and sweatshirts branded with Commercial’s logo and “instructed Plaintiffs to tell anyone who asked that they worked for Commercial.” Id.
In viewing the facts as a whole, most observers would agree that the relationship between Commercial and J.I. was close enough that it is not surprising the court concluded a jury had the basis to find the two to be “joint employers.” What is surprising, however, is that many of the facts the Fourth Circuit cited in support of its ruling are commonplace circumstances that are part and parcel of relationships between contractors and subcontractors across the country, and the court made a point of indicating that no single fact was necessarily dispositive. Id. at 32-33.
The court’s emphasis on seemingly mundane connections that are commonplace in the contractor-subcontractor relationship should be troubling to general contractors and first tier subcontractors. A contractor checking the progress of a subcontractor’s work and directing subcontractor employees to correct deficient work would not normally be viewed as establishing a “joint employer” relationship between a contractor and its subcontractor. Yet that common-place practice was among the facts considered by the Fourth Circuit in concluding that Commercial and J.I. were not “completely disassociated” with respect to the employment of J.I.’s employees and were, therefore, “joint employers.”
