Fourth Circuit Applies New Joint Employer Standard to Independent Contractors

In a decision issued the same day as Salinas v. Commercial Interiors, Inc., in which the U.S. Court of Appeals articulated a new and expansive standard for establishing joint employer status under the Fair Labor Standards Act, the Fourth Circuit applied Salinas to a case involving independent contractors.

Facts of the Case:  In Hall v. DIRECTV, satellite television technicians alleged that DIRECTV, along with its subcontractors (including DirectSat), through a “web of agreements with various affiliated and unaffiliated service providers,” jointly employed them and was therefore jointly and severally liable for purported FLSA violations. According to the plaintiff technicians, although they were designated as independent contractors, “DIRECTV dictated nearly every aspect of Plaintiffs’ work through its agreements with the various providers that directly employed technicians.”

DIRECTV moved to dismiss the plaintiffs’ claims. The district court applied a two-step inquiry to the plaintiffs’ claims – with the first question being whether the individual worker is an employee of each putative joint employer, and if the answer was “yes,” turning to the second question of whether an entity other than the direct employer is a joint employer of the worker. The district court determined that, in this instance, the plaintiffs had failed to allege sufficient facts to establish the joint employer relationship, and therefore dismissed the FLSA claims against DIRECTV.

The Court’s Rulings:  The Fourth Circuit reversed the district court’s dismissal. It found that the trial court had inverted the relevant inquiry as to joint employer status. Noting that it had addressed the proper order of analysis in FLSA joint employment action in a prior case, Schultz v. Capital Int’l Securities Inc., the Fourth Circuit stated that the first step is to “determine whether the defendant and one or more additional entities shared, agreed to allocate responsibility for, or otherwise codetermined the key terms and conditions of the plaintiff’s work.” The second step of the analysis asks whether the worker is an employee or independent contractor – the answer to which depends in large part on the answer to the first question. The Fourth Circuit further explained that “the joint employment doctrine is premised on the theory that, when two or more entities jointly employ a worker, the worker’s entire employment arrangement must be viewed as ‘one employment’ for purposes of determining whether the worker was an employee or independent contractor under the FLSA.” (internal quotations omitted).

The Fourth Circuit explained that this two-step analysis “will not automatically render every independent contractor who performs services for two or more entities an ‘employee’ within the FLSA’s scope. Rather, under this two-step inquiry, individual who bear true hallmarks of independent contractor status will remain outside of the FLSA’s scope even if they perform work for two or more entities that are ‘not completely disassociated’ with respect to those individuals’ work.”

With regard to the two-step analysis, the Fourth Circuit noted that the district court had also applied the wrong test for joint employment, rather than the newly-articulated test from Salinas. The use of the wrong, “unduly restrictive” test meant that the district court had erred in granting the motion to dismiss. Further, the Fourth Circuit noted that the district court had also erred in concluding that a majority of factors must weigh in favor of joint employment for it to exist.

The Fourth Circuit then applied the correct legal standards to the plaintiffs’ claims. First, the Fourth Circuit found the plaintiffs had sufficiently alleged that DIRECTV and its subcontractors, through various provider agreements and standards, “shared authority of hiring, firing and compensation.” Thus, the plaintiffs had made out a plausible claim that DIRECTV and its subcontractors were “not completely disassociated.”

Next, the Fourth Circuit turned to the question of whether under the plaintiffs’ “one employment” with DIRECTV and its subcontractors, the plaintiffs had sufficient alleged that they were employees rather than independent contractors. Relying upon the six-factor independent contractor test identified in our  discussion of the Salinas case, the Fourth Circuit determined that the plaintiffs had sufficiently alleged that they were effectively economically dependent on DIRECTV. DIRECTV “collectively influenced nearly every aspect of Plaintiffs’ work as DIRECTV technicians” – including hiring, compensation, training, control of the manner and timing of installations, and dress.

In conclusion, the Fourth Circuit found that the plaintiffs had adequately alleged that DIRECTV and its subcontractors were joint employers of the technicians, and that the plaintiffs were economically dependent upon them, meaning that they were employees rather than independent contractors.

Practical Impact:  In conjunction with the Salinas case, this case vastly expands the likelihood that joint employer status will be found in many more situations – and that it will be more difficult to establish independent contractor status.