3rd April 2017
Smith Moore Leatherwood LLP
The Fourth Circuit U.S. Court of Appeals has issued a new and important ruling on the concept of "joint employers"- when an employee can sue two different companies as if both are his employer. The court adopted an especially broad test that will expand potential liability for companies that might not think of themselves as employers. MSI's Georgia & South Carolina member Smith Moore Leatherwood LLP provides further information.
The Fourth Circuit case is particularly important for staffing agencies and their clients, franchisees and franchisors, contractors and subcontractors, and for affiliated entities of a corporate enterprise.
The Fourth Circuit case dealt with alleged violations of the Fair Labor Standards Act, where being joint employers means both entities are fully responsible for keeping track of an employee’s hours worked (and aggregating the hours worked for both entities), for overtime pay, and for correct classification of the employee as exempt/non-exempt. A mistake or failure by one of the two entities means the other entity is equally responsible under the law for any resulting liability.
The court’s new test focuses on the relationship between the companies more than on the relationship between the employee and either of the two companies. The court now asks: are the two companies “entirely independent” of each other or, instead, “not completely disassociated” with respect to the essential terms and conditions of the individual’s employment?
The court’s phrase “not completely disassociated” is rather awkward, but it essentially means that if the two companies have not fully separated the employment functions, they are maybe considered joint employers. The court identified six factors to consider with respect to two entities
The court did not rank these considerations or declare how much joint activity needs to exist before two entities will be joint employers. However, the court did say that two entities should be “entirely independent” and “completely disassociated” from each other, which means that having to answer “yes” to any of these six questions raises concerns about potential joint employment status.
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