During a labor shortage, many subcontractors and GCs seek out workers from third parties to fill positions from general laborers to specialty tradesmen. Joint employment typically occurs when a contractor arranges – or contracts – with an intermediary employer to provide labor, and the contractor and intermediary are both treated as “employers” of the same worker.

This means that a contractor could legally employ someone who is not on their normal payroll. Examples of this include the contractor-subcontractor relationship or the contractor-staffing company relationship. This type of relationship could extend to instances where a contractor or subcontractor engages, or contracts, with a staffing company to obtain laborers for a certain project or carry out certain employer functions, such as administering payroll and benefits.

This article will explore how the U.S. Department of Labor (DOL) and recent federal case law has been clarifying this joint employer relationship as well as the rights and obligations of all construction employers.

Recent Case Law

It is important to determine who has responsibility for construction employees and their obligations, rights, and benefits.

In 2017, the Federal Fourth Circuit, which includes North Carolina, South Carolina, Virginia, West Virginia, and Maryland, applied a six-factor test to determine if an employer is “completely disassociated” from the intermediary employer.¹ In this case, former employees of a framing and drywall installation subcontractor brought an action against the subcontractor, its owners, and the project GC, alleging violations of the Fair Labor Standards Act (FLSA).²

The case originated in Maryland but had sweeping impacts on all states in the Fourth Circuit. The lower federal court allowed the GC out of the case, holding that the GC did not jointly employ the plaintiffs because the subcontractor and the GC entered into a “traditionally...recognized” legitimate contractor-subcontractor relationship, and they did not intend to avoid compliance with the FLSA.³ The subcontractor was a bankrupt entity, and the employees appealed the court ruling because the GC was the only viable entity in existence.⁴

The Fourth Circuit Court of Appeals reversed the lower court ruling using a six-factor test and found that the plaintiffs were employees of the GC under the premise of the joint employer doctrine.⁵

The standard test adopted by the court is very relaxed, loose, and has the potential to hold many GCs to the standard of an employer. Factors to be considered include:

1. Whether, formally or as a matter of practice, the possible joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;
2. Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to – directly or indirectly – hire or fire the worker or modify the terms or conditions of the worker’s employment;
3. The degree of permanency and duration of the relationship between the putative joint employers;
4. Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;
5. Whether the work is performed on a premise owned or controlled by one or more of the putative joint employers, independently or in connection with one another; and
6. Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll; providing workers’ comp insurance; paying payroll taxes; or providing the facilities, equipment, tools, or materials necessary to complete the work.⁶

Federal court decisions over the past few years have been all over the map. The First, Third, Fifth, and Seventh Appeals courts currently apply a four-part test established in the Bonnette v. California Health & Welfare Agency case.⁷

The factors determinative in the test are “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.”⁸

As noted earlier, the Fourth Circuit has rejected the four-part test and adopted an entirely different approach. The Fourth Circuit’s ruling rejected the decisions of the other court jurisdictions adopting the four-part test and focused more on the relationship between the two alleged joint employers.⁹

Finally, the Second Circuit rejected the four-part test and adopted a broader, six-part test that was used in Zheng v. Liberty Apparel Co.¹⁰ This test permits a court to find joint employment when an entity has functional control over workers, even in the absence of formal controls.¹¹