Federal Appeals Court Finds Maryland General Contractor Responsible for Subcontractor Employees’ Unpaid Wages as Joint Employer
May 11, 2017
The Fair Labor Standards Act (“FLSA”) is a federal statute that was enacted to provide, among other things, wage protections for covered employees. It is best known for establishing the federal minimum wage and overtime pay requirements. The FLSA can also impose liability on one company for unpaid wages owed to another company’s employees under a “joint employer” theory.
The standards to determine joint employer liability within the construction industry in Maryland recently became clearer, as the Fourth Circuit Court of Appeals determined that a general contractor was liable for wages owed to its subcontractor’s employees. In Salinas v. Commercial Interiors, Inc., 848 F.3d 124 (4th Cir. 2017), the Court determined that joint employment exists when essential terms and conditions of a worker’s employment is (formally or informally, directly or indirectly) determined by two or more people or entities AND those two people/entities’ combined influence over the terms and conditions of employment render the worker an employee as opposed to an independent contractor.
To evaluate whether the general contractor was a joint employer of its subcontractor’s laborers thereby making the general contractor directly responsible for wages owed to the laborers under the FLSA, the Court looked to certain factors including: (1) whether formally or as a matter of practice, the companies jointly determined direction, control or supervision of the worker, and had or shared the power to hire and fire or modify the worker’s employment; (2) the duration and degree of permanency of the relationship between the companies; (3) whether through management or ownership, one company controls, is controlled by or is under common control with the other company; (4) whether the work is performed on a premises owned or controlled by one or more of the companies, independently or in connection with one another; and (5) whether, formally or as a matter of practice, the companies jointly determined, shared, or allocated responsibility over functions ordinarily carried out by an employer, such as handling payroll, providing workers’ compensation insurance, paying payroll taxes, or providing the facilities, equipment, tools, or materials necessary to complete the work.
In the Salinas case, the following important facts were established to satisfy the factors above: (1) laborers performed nearly all of their work on the general contractor’s jobsites, and the general contractor was virtually the sole contractor that the subcontractor worked for; (2) the general contractor provided the tools, materials, and equipment to the subcontractor’s laborers; (3) on at least one occasion, the general contractor rented a house near the jobsite for the laborers to stay in during the project; (4) the general contractor actively supervised the laborers’ work on a daily basis by having foreman walk the jobsite, check the laborers’ progress and frequently directed the laborers to re-do deficient work; (5) the general contractor required the laborers to attend frequent meetings regarding their assigned tasks and safety protocols; (6) the general contractor required the laborers to sign in and out with the general contractor’s foreman upon reporting to and leaving the jobsite each day; (7) the general contractor’s foreman told the laborers to work additional hours and Saturdays; (8) for time and material work, the general contractor decided how many laborers to use and the maximum hours; (9) the general contractor provided the laborers with stickers bearing the general contractor’s logo for their hardhats and vests; (10) the subcontractor’s supervisors instructed the laborers to say they worked for the general contractor, if asked; (11) on at least one occasion, the general contractor required the laborers to fill out the general contractor’s employment applications and directly hired them for that project.
Unfortunately, the Fourth Circuit did not identify which of these facts it found most persuasive and some of the activities are necessary realities of a commercial construction project involving a general contractor and subcontractors. The totality of the facts satisfied the Court’s identified factors for joint employer liability under the FLSA.
One other note to consider is that prior payment to a subcontractor will not necessarily absolve the general contractor of its obligation to pay under the FLSA. That is, if an employee is not ultimately paid correctly under the FLSA, the general contractor could be obligated to pay even if it already paid the subcontractor, thereby requiring the general contractor to essentially pay twice and then seek reimbursement from the subcontractor. It is therefore important for a general contractor or higher tier subcontractor to ensure wage compliance for all laborers on its construction projects.