Property Casualty

Are You Responsible for Employees Who Aren’t Your Own?

Miles Weis
Miles Weis
AVP, Executive Risk and Cyber Practice Leader

You might be. Seems odd, especially if you didn’t hire them and don’t directly pay them. The thing is, you could still be liable for ensuring their employment is in compliance with the Fair Labor Standards Act (FLSA) and National Labor Relations Act (NLRA).

Unfair? Maybe.

But it’s possible, and it’s becoming an issue for those operating in the construction industry (and other industries such as agriculture, staffing, and hospitality). Three words explain it all: joint employment relationships.

Employment Law Updates for Joint Employment Relationships

Recent cases and developments have launched joint employment relationships into the employment law spotlight.

  • In August 2015, the National Labor Relations Board (NLRB) under the NLRA expanded joint employer liability in its Browning-Ferris Industries of California, Inc. decision.
  • Again in 2015, the NLRA determined that McDonalds, the world’s largest restaurant chain, shares responsibility as a joint employer with franchise owners for the managing of their employees.
  • The Wage and Hour Division (WHD) of the Department of Labor (DOL) issued an Administrative Interpretation (AI) that expands joint employment under the FLSA and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
  • This past January, the WHD issued similar guidance regarding joint employment under the Family Medical Leave Act (FMLA).

These decisions and interpretations ensure joint employer relationships are interpreted as broad as possible for the benefit of our workforce. But, they create increased scrutiny and exposure to employers. It gets a little messy. Where a joint employment relationship exists, the employers are jointly and severally liable for compliance with the acts. That means your company could be liable for actions that may seem to be out of your control.

Categories of Joint Employer Relationships

The recent AI breaks joint employer relationships into two main categories:

Horizontal Joint Employment

Exists when an employee has employment relationships with two or more employers and the employers are associated or related. The key for determining horizontal joint employment is the relationship of the employers.

For example: A laborer works separate shifts for two separate companies that have common ownership. If the employee’s combined hours for that work week are more than 40 hours, then both employers would be jointly and severally liable for compliance with the FLSA and payment of overtime. This exposure does exist in the construction industry and is also commonly found in the restaurant industry.

Vertical Joint Employment

—Exists when a worker has an employment relationship with one employer, and the economic realities test shows they’re economically dependent on, and thus employed by, another entity involved in the work. The key for determining vertical joint employment is the relationship between the employee and the potential joint employer. This arrangement is more common in the construction industry.

For example: A subcontractor’s employees that are dependent on the general contractor for work could be seen as joint employees of the subcontractor and general contractor.The recent interpretation of vertical employment rejects control-based analysis (ability to hire/fire, set rate of pay, determine work hours/conditions) and uses the economic realities test.

Mitigate Your Risk

The government is keeping a close eye on how these relationships affect our workforce, so it’s important you’re taking steps to help reduce any exposures you may have associated with joint employment relationships, including:

  • Conducting an inventory of the parties and employer relationships to assess potential exposures. Who your organization works with and to what extent will play a critical role in assessing your exposure.
  • Ensuring any subcontractors you may have comply with employment laws and regulations and purchase their own Employment Practices Liability (EPL) policies. Contract language should be broad in nature with regard to employment conditions and not stipulate specific wages or terms (more details in these regards can lead to a higher likelihood of finding of joint employer relationships).
  • Considering requiring indemnity or hold harmless from the subcontractors with regard to employment-related liability.
  • Evaluating the best way to structure relationships with contractors and employers, and minimize your exposure. Companies that might qualify as horizontal or vertical joint employers should consult with counsel and review their current employment arrangements.
  • Staying current on these topics and areas of law so your company can better understand and prepare for potential exposures. Don’t get caught off guard by the recent changes in joint employer liability.

The employment law landscape is ever developing and changing, and the construction industry is certainly not immune to these changes. It’s imperative your organization keeps up to speed with the new dynamics so you can remain focused on your business. And certainly, don’t hesitate to reach out to us with questions. You can do so below or by contacting us directly! We are well-versed to be able to help you determine your potential risks!

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