Distance Yourself: How to Avoid Joint Employer Liability

Reprinted from the July 2017 issue of Properties Magazine


Safety, discrimination and harassment, wage and overtime payments, unions and collective bargaining—managing your workforce comes with enough challenges. But what if you were held responsible for another company’s employment liabilities as well? This is the nightmare scenario that can come true under the “joint-employer doctrine,” particularly in subcontractor and temporary employment arrangements. Fortunately, new Department of Labor (DOL) Secretary Alex Acosta’s recent decision has made it less likely for this scenario to occur. However, to benefit from this decision, certain safeguards need to be in place, primarily involving the level of control exerted over the other company’s employees.

Joint Employment Relationship and Its Implications

A joint employment relationship exists when one employer (the “primary”) is so closely connected to another employer (the “secondary”) that the employees of the secondary are also considered employees of the primary. This is often seen in the general contractor/subcontractor relationship or between a contractor and a temporary staffing agency. The main consequence of a joint employment relationship is that the primary employer becomes liable for the secondary employer’s employment liabilities. Here are some examples:

  1. Wage and Hour Violations: A primary employer may be held responsible for the secondary employer’s failure to pay minimum wages or overtime. Publicly funded projects may also hold a primary liable for the secondary’s failure to pay prevailing wages.
  2. Employment Discrimination and Harassment: A primary employer can be held liable if the secondary unlawfully terminates or harasses one of its own employees based on a protected characteristic.
  3. Family and Medical Leave Act (FMLA) Obligations: If the combined workforce of joint employers is sufficiently large, both employers may be subject to FMLA obligations. Additionally, a primary employer may be held liable for the secondary’s failure to comply with existing FMLA obligations.
  4. Union Obligations and Collective Bargaining: A joint employer finding can result in a primary being held responsible for unfair labor practices committed by the secondary or being required to comply with the secondary’s collective bargaining contract. It can also jeopardize the primary’s right to avoid pickets and boycotts during a labor dispute involving the secondary’s employees.
  5. Safety Violations: An employer can already be cited for hazards to other employers’ employees under OSHA’s multi-employer policy. However, a joint employer finding could render a primary liable for the secondary’s safety violations on a separate worksite. Additionally, even without employer fault, a joint employer could face workers’ compensation liability for a secondary employee injured on the job site.
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Evaluating Joint Employer Status

Determining joint employer status is not straightforward, as the tests vary across statutes and jurisdictions. The most important factor, however, is the level of control exerted. A primary employer can be considered a joint employer if it has “direct and immediate control” over the secondary employer’s employees. Key factors in making this determination include whether the primary: (i) hires or has input into the selection process of the workers; (ii) determines the workers’ compensation; (iii) directs the workers’ day-to-day activities or supervises their performance; or (iv) has the authority to discipline or terminate the workers’ employment.

In recent years, the DOL has sought to expand joint employment liability by reducing the level of control required. However, the new DOL Secretary of Labor revoked this interpretation on June 7, 2017. While this is good news, employers must still have the necessary safeguards in place to avoid joint employer liability by regulating the control and direction of the secondary employer’s employees.

Minimizing Joint Employer Liability

To avoid joint employer liability, the first step is to establish proper safeguards in the subcontract or staffing agreement. This agreement should include representations that the secondary employer: (1) will comply with all employment laws and indemnify the primary for any violations; (2) is solely responsible for all necessary training, including safety training; (3) is solely responsible for recruiting, pre-employment screening, personnel policies, wage and benefit payments, insurance coverage, and tax withholding; and (4) is solely responsible for hiring, setting schedules, directing day-to-day activities, performance management, and discipline and termination. Additionally, the agreement should be limited in duration or scope, such as for a single project.

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It is crucial to follow the limitations stated in the agreement. This requires implementing procedures that govern how the primary’s managers and supervisors interact with the secondary’s employees. For instance, in the case of a safety violation, a primary’s supervisor may remove the employee from the jobsite, but not administer disciplinary action. Similarly, while it is acceptable for a primary to implement quality control measures, directly instructing the workers’ activities and methods is not appropriate. Supervisors and managers must receive proper training to ensure compliance with these guidelines. Finally, subcontractors and staffing agencies should also understand and comply with their legal obligations to their employees, offering an additional layer of protection against potential joint employer liability.

For more information on joint employer liability, visit Garrity Traina.