2016 will be a year in which joint employer liability will be a major issue for employers. Why am I making this prediction? First, the NLRB has refocused attention to this issue in hopes of expanding the number of employers that can be found jointly liable. Second, the Department of Labor issued an Administrative Interpretation this week and set up a new website setting out how the DOL views the joint employer analysis. Today’s Friday’s Five focuses on five issues employers should review regarding the joint employer analysis.
1. Employers should review the DOL’s Administrative Interpretation on the joint employer relationship
On January 20, 2016, the Department of Labor issued an Administrative Interpretation regarding how it views and would analyze whether there is joint employer liability between two or more different entities that share workers. The Administrative Interpretation can be read here.
The DOL sets out the difference between horizontal joint-employers and vertical-joint employers:
Horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee. The analysis focuses on the relationship of the employers to each other.
Vertical joint employment exists where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work. This other employer, who typically contracts with the intermediary employer to receive the benefit of the employee’s labor, would be the potential joint employer. Where there is potential vertical joint employment, the analysis focuses on the economic realities of the working relationship between the employee and the potential joint employer.
The DOL’s opinion letter sets out the factors it would review in making a determination under the horizontal or vertical joint employment scenarios, and employers should review these factors. The DOL also created a website setting out additional information about joint employment under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.
2. California’s joint employer test
“[T]he basis of liability is the defendant’s knowledge of an failure to prevent the work form occurring.” Martinez v. Combs, 49 Cal.App.4th 35, 70. Therefore, to be an employer, the entity must have power to prevent the worker from performing work. If there is no control to prevent the work, the entity cannot be held liable as a joint employer.
California’s Industrial Welfare Commission (IWC) also sets forth law regarding California’s wage and hour requirements. The IWC definition also includes “any person … who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” The court in Martinez held that a joint employer relationship exists when one entity, which hires and pays workers, places the worker with another entity that supervises the work. There are many factors that a court can look to in making this determination, and employers should approach
3. Additional responsibilities for California employers under Labor Code section 2810.3
Effective January 1, 2015, Labor Code section 2810.3 expanded the liability of “client employers” that obtain workers through temporary agencies or other labor contractors. The law requires that the client employer who obtains the workers through the agency must share in the liability for any wage and workers compensation issues. The law also provides that a client employer cannot shift all of the liability for wage and workers compensation violations. However, the law does provide that the client employer can seek indemnity from the labor contractor for violations. Therefore, it is important for employers who are covered by Labor Code section 2810.3 and who are obtaining workers through a labor contractor to ensure the labor contractor is meeting all wage and workers compensation requirements, and negotiate an indemnity provision in the contact with the labor contractor should any liability arise.
4. Even if there is found to be a joint employer relationship, there is no personal liability for unpaid wages under CA law (but see item #5 below)
California law does not hold corporate officers or directors personally liable for unpaid wages by the corporate employer. See Reynolds v. Bement, 36 Cal.4th 1075, 1085 (2005). This is different than the FLSA, which does impose liability on “any person” acting on behalf of the employer for unpaid wages. It is important to note that under California law personal liability could still be imposed on a company’s officers or owners under the alter ego theory.
5. However, there may be personal liability for civil penalties imposed under CA law
In addition, the California Labor Code’s civil penalties could be imposed on individuals. For example, Labor Code section 558(a) provides that “any employer or other person acting on behalf of an employer” who violates or causes a violation could be held personally liable for applicable civil penalties. Labor Code section 1197.1 that applies to minimum wage likewise holds individuals potentially liable for civil penalties for failure to pay minimum wages. See Labor Code section 1197.1. Therefore, employers need to review and set up policies and practices to ensure that they do not find their companies, and potentially themselves personally liable for liability created by an outside agency that supplies workers for to them.