Do Your Employees and Construction Laborers Belong to You? Depends.
When walking through the mall or the grocery store with my children, I inevitably get asked, “Are they all yours?” Depending on my mood, I may or may not claim them all. As a general contractor, you will want to know the law on whether laborers hired through a staffing company will be considered “yours” for purposes of the Fair Labor Standards Act (“FLSA”).
It is very common in the construction industry that general contractors and trade contractors will hire workers through third party management companies, independent contractors, staffing agencies and labor providers. Consequently, traditional employment relationship lines are blurred in determining who is the real employer?
What is a joint employer? On January 20, 2016, the U.S. Department of Labor released its Administrator’s Interpretation (“AI”) No. 2016-1 (PDF), which addresses these type of situations involving joint employment determinations. Whether an employee has more than one employer is important in determining employees’ rights and employers’ obligations under the FLSA. When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA. However, not every subcontractor or labor provider relationship results in joint employment.
What test applies? The AI discusses two different scenarios—horizontal joint employment and vertical joint employment. Horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee. The analysis focuses on the relationship of the employers to each other. Vertical joint employment exists where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.
What about the construction industry? While the AI address all workplace scenarios, it specifically outlines the following example with the hiring of construction laborers through a staffing agency:
A laborer is employed by ABC Drywall Company, which is an independent subcontractor on a construction project. ABC Drywall was engaged by the General Contractor to provide drywall labor for the project. ABC Drywall hired and pays the laborer. The General Contractor provides all of the training for the project. The General Contractor also provides the necessary equipment and materials, provides workers’ compensation insurance, and is responsible for the health and safety of the laborer (and all of the workers on the project). The General Contractor reserves the right to remove the laborer from the project, controls the laborer’s schedule, and provides assignments on site, and both ABC Drywall and the General Contractor supervise the laborer. The laborer has been continuously working on the General Contractor’s construction projects, whether through ABC Drywall or another intermediary.
According to the AI, “[t]hese facts are indicative of joint employment of the laborer by the General Contractor.”
So what? As a result of changes throughout the various workplace industries, it is possible that a worker is jointly employed by two or more employers. In determining whether an employee has joint employers, the following two factors should be considered: (1) whether the employee works for two employers who are associated or related in some way with respect to the employee; or (2) whether the employee’s employer is an intermediary or otherwise provides labor to another employer. In the end, general contractors may be responsible for FSLA compliance over laborers who are the employees of staffing companies.