Employers are finding out based on recent actions by federal regulatory agencies the question, “Who qualifies as my employee?” may not be as straightforward as it appears.
The key, according to one local law firm, is to determine where you stand.
According to Grand Rapids-based law firm Rhoades McKee, many employers source from staffing firms or independent contractors to avoid payroll-related costs, such as benefits and statutory mandates like the Family and Medical Leave Act and the Affordable Care Act, all of which would be in force for those who are defined as employees if the company meets the threshold of 50 employees.
But government bodies, such as the Department of Labor, National Labor Relations Board and Equal Employment Opportunity Commission, are taking a closer look at whether the partnerships between staffing agencies and employers make them joint employers and also whether there is a common law employment relationship between the employer and the worker.
“In 2015, the NLRB issued (a decision in the case) Browning-Ferris, a formal opinion about when an employer can be considered a joint employer,” said Mark Smith, an employment attorney at Rhoades McKee. “The first prong is, ‘Is there a common law relationship?’ Does the entity for which the work is performed control the way in which the work is performed?’”
According to Rhoades McKee’s recent legal alert on the topic, “A common law employment relationship exists where an individual is employed to perform services for another and is subject to that other’s control with respect to how those services are rendered, whether or not that control is indirect or not even exercised.”
In other words, if the employer is calling the shots, it’s time to examine whether the relationship entitles the worker to benefits, which might include the right to unionize as well as the aforementioned benefits and protections.
Smith said a few cases underway illustrate the types of tensions that might arise.
“I had a client who was in the agricultural industry and had hired an outside broker to provide employees. And the outside broker would send an invoice that said X number of hours, times X hourly rate, here’s what you owe,” Smith said.
“The DOL did an audit and said a lot of these employees worked over 40 hours per week, so they are entitled to overtime pay. And because you exercised authority over them, we are going to treat you as their employer and seek from you the overtime they should have been paid.”
Smith indicated the DOL is seeking compensation from employers in cases like this all over the U.S. Another case he mentioned had to do with the right to unionize.
“The NLRB said that this company in the construction industry was hiring employees through another labor broker, and those employees decided to unionize,” he said. “The NLRB concluded the entity was really a joint employer with the labor broker. And the NLRB said they could petition to unionize.”
The question then comes up, what other types of situations could lead to the DOL defining a company as a joint employer? Smith said one instance is if there is a “sister company” relationship between two entities.
“Say it’s a company of 10 people,” he said. “Because we only have 10, we’re not subject to FMLA. And it turns out the owners have a sister company across the street that has 45 employees. Depending on how the two companies interact together, it can be determined that they are joint employers by the Department of Labor. And here you have employees in each of those companies thinking they don’t qualify for FMLA, but they do.”
Another thorny issue is the case of franchises.
“In the franchise context, there are a string of cases involving the McDonald’s Corporation,” Smith said. “(It’s) looking at enforcing the various rules and regulations and enforcing them upstream to the corporation. The franchises are typically owned by a group of investors. McDonald’s has certain rules they want them to follow. It can be argued that the franchisee and its employees are employees of the corporation.
“Say you have someone here in GR working for a franchise, and the corporation is responsible for a labor law violation. Those cases are working their way through the court system. As things currently stand, the lower courts have ruled in favor of the employees, granting them broader benefits than they otherwise would have.”
The EEOC gets involved in scrutinizing employer practices when it comes to possible instances of discrimination on the part of an employer toward a temp or contract worker who might be classified as an employee.
“Some people would think, for example, that if I hire someone through a labor broker and I don’t want that person to appear before my workforce and they’re in a protected category — they’re old, they’re of an ethnic group or otherwise — they think it doesn’t matter because I can just tell the labor broker not to send them.
“But the EEOC can say guess what, you are a joint employer. Workplace discrimination is workplace discrimination. If we can find a way to make you liable for discrimination, we will.”
Smith said employers can be responsible for the consequences in the case of any type of violation, including underpayment of wages or overtime, worker’s compensation, or FMLA, Americans with Disabilities Act, ACA, immigration, discrimination, retaliation or unfair labor practices violations.
Consequences could include liquidated damages of twice the amount of any underpayment, plus civil penalties and attorney fees.
A good rule of thumb, Smith said, is for companies to err on the side of caution.
“The more you act like an employer with reference to the employees, the more you become an employer,” he said.