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Employer Liability: Cleaning Up the Joint Employer Doctrine: Wage Violation Liability

by Timothy K. Baldwin

The U.S. District Court for the District of Rhode Island recently ruled that a cleaning company that subcontracted work to other cleaning companies wasn’t a joint employer for one of its subcontractors. The district court focused on the economic reality test for determining liability under the federal Fair Labor Standards Act (FLSA) and the Rhode Island Minimum Wage Act (RIMWA) and found that the company wasn’t liable.

Facts

Roman’s Commercial Cleaning contracted with customers to clean commercial properties. The company didn’t perform the cleaning itself. Instead, it subcontracted the work to other cleaning companies. It employed only a small office staff and two supervisors who coordinated with subcontractors. The company typically paid the subcontractors set rates for performing cleaning services.

Cleaners for one of Roman’s subcontractors alleged that they didn’t receive pay for all hours they worked. They sued the company under the FLSA and the RIMWA. They believed that Roman’s employed them, and they sued on a joint-employer theory.

Four-factor ‘economic realities’ test

The lynchpin of the case turned on whether the company was a joint employer along with the subcontractor. The district court first observed that the RIMWA follows the same test as the FLSA, and there was no need to analyze the Rhode Island statute separately. Under the FLSA, the definitions of employee (“any individual employed by an employer”) and employer (“any person acting directly or indirectly in the interest of an employer in relation to an employee”) should be construed broadly.

Based on the policy of construing the FLSA broadly, the district court observed that a so-called “joint employer” can be held liable for wage violations. To determine if a company is liable as a joint employer, the court explained that “courts look not to the common law conceptions of that relationship, but rather to the ‘economic reality’ of the totality of the circumstances bearing on whether the putative employee is economically dependent on the alleged employer.” The four key factors that determine the economic reality of the circumstances focus on whether the alleged employer:

(1)  Had the power to hire and fire the employees;

(2)  Supervised and controlled employee work schedules or conditions of employment;

(3)  Determined the rate and method of payment; and

(4)  Maintained employment records.

No single factor is determinative.

Using these four factors, the district court analyzed whether Roman’s was a joint employer of the employees along with the subcontractor.

Hiring and firing. The court first looked to whether Roman’s could hire and fire the subcontractor’s employees. There was no evidence in the record that the company hired or fired the employees in the case, but they argued that it had indirect control because the subcontractor relied entirely on the company for work and payment. The court rejected this argument, reasoning that the source of funding by itself said nothing about the subcontractor’s ability to hire and fire its own employees. The court also pointed out that there was nothing in the record that established that the subcontractor worked solely for Roman’s and didn’t have other customers.

Supervising and controlling work schedules and conditions. The court turned next to whether Roman’s supervised and controlled the employees’ work schedules and employment conditions. It observed that making sure the customer receives quality work on time doesn’t establish a joint-employer relationship because it’s consistent with a typical subcontracting arrangement. Instead, supervision and control prove an employment relationship “only when the oversight demonstrates effective control over the schedule and conditions of employment,” and a joint employer must control the day-to-day aspects of the employee’s job.

The court found that the employees couldn’t meet this standard because Roman’s control and supervision of their work consisted of receiving reports and complaints about when they arrived at and left the stores or were absent from work. The evidence in the record established that Roman’s was focused on quality assurance, and it never told the subcontractor what the employees’ work schedule should be or how to perform cleaning tasks.

Determining rate and method of payment. The third prong of the joint-employer test was whether Roman’s determined the employees’ rate and method of payment, and the court found no evidence that the company dictated how the subcontractor should pay them. The fact that it paid the subcontractor a set sum didn’t move the meter because it suggested nothing more than a typical contractor/subcontractor relationship.

Maintaining employment records. Finally, the court turned to whether Roman’s maintained any of the employees’ employment records. It found that the company didn’t maintain employment records, such as personnel files, time sheets, pay stubs, or government employment forms, for the subcontractor’s employees. The only records the company kept were quality-of-work reports, customer complaints, and tardiness or absence documents. The court concluded that the company maintained these records for quality-control purposes and didn’t constitute evidence of a joint-employer relationship.

After analyzing each prong of the four-factor test, the district court concluded that Roman’s wasn’t a joint employer. Franco v. Roman’s Commercial Cleaning.

Bottom line for employers

This ruling is a reminder that a contractor/subcontractor relationship isn’t sufficient to establish status as a joint employer and liability under the FLSA or the RIMWA. Payment to a subcontractor, along with basic oversight to ensure quality assurance, doesn’t subject a company to liability as a joint employer under the district court’s ruling.

To discuss this case — or one like it — contact Tim directly at tbaldwin@whelancorrente.com or 401-270-0330.

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