Joint employment has kept labor and employment lawyers busy in recent years.
The concept of joint employment means that an employee can be simultaneously, or “jointly,” employed by two or more entities that exercise, or have the right to exercise, some level of control over the terms and conditions of employment. While this is not a concept that is rich with complexity, the consequences of being found a joint employer can be serious.
An entity (let’s call it the “employing company”) can be held jointly liable for another entity’s (let’s call it the “placing company”) violations of employment-discrimination laws, wage-and-hour violations, and unfair labor practices. This is true even though the employing company does not directly employ the individual whose rights are said to have been violated and played no part in the alleged violation.
One example of joint employment is when an employing company uses temporary employees from a placement or temp agency. If the employees allege that they have not been paid for the work performed, it is possible that the employing company can be jointly liable with the placement agency for the unpaid wages – even if the employing company has fully paid the placement agency.
Another example is when a contractor hires a subcontractor to provide labor for a construction project. In one recent case, the subcontractor did not properly pay its employees overtime wages and improperly classified them as independent contractors. While the subcontractor is clearly liable for the unpaid overtime and the misclassification consequences, the contractor could also be on the hook.
The National Labor Relations Act (NLRA) – which governs the collective bargaining obligations of employers, protects the rights of employees to engage in protected concerted activity, and protects employees’ rights under the Fair Labor Standard Act – has looked at joint employer status over the years and changed its position several times. The current NLRA rule is that an entity can be a joint employer when it has a contractually reserved right of control over another entity’s employees, regardless of whether that control is actually exercised.
Courts also apply the control rule in cases involving a claim of joint employer status. For instance, in the 2015 case Faush v. Tuesday Morning, the U.S. Court of Appeals for the Third Circuit adopted an approach toward joint employment in a race discrimination case brought against an entity that leased its employees from a staffing agency. The court analyzed the company’s liability as a joint employer through the lens of its “right to control the manner and means by which the work product was accomplished.” The court then applied this analysis by evaluating the practical day-to-day relationship between the company and the leased employee, focusing heavily on the actual and direct control exercised by the company over its leased employee.
Being found liable as a joint employer can have serious financial consequences for a business. To mitigate that risk, employing companies should take care to structure their relationships with placing companies in a manner that creates a layer of separation between their supervisory personnel and the employees of the placing company. Employing companies should also make sure their contracts with the placing companies do not inadvertently create the illusion of a joint employment relationship and their contracts clearly delineate the obligations of control and supervision over employees.
This can be tricky, though. While there are cases where an employing company will not exercise control over a placement company’s employees, the opposite is also true in many cases. That is, the employing company may have to exercise control over the employees to ensure that the work is performed correctly. In these cases, protecting against joint employer liability may be less about controlling how the employees perform work and more about ensuring that the placing companies are in full compliance with all employment laws. This may require periodic audits by employing companies of the employment practices of the placing companies. It may also require the inclusion of indemnity provisions in the placement contract so that if the employing company is held liable for employee claims, it can look to the placing company for reimbursement.
Joint employer liability is not going away, and it can cost an employer significantly. Before using employees of another company, employers must consider the risks and undertake efforts to protect against them or to at least minimize them. Consulting an employment lawyer before engaging temporary employees can accomplish this.
Steven M. Williams is the managing partner of Cohen Seglias’ Harrisburg office. Joshua A. Brand is an associate in Cohen Seglias’ Philadelphia office.