A recent appeals court decision may have muddied the waters of the contractor-subcontractor relationship, finding that the two parties could be considered “joint employers” of the subcontractor’s workers in regard to the Fair Labor Standards Act (FLSA).

The Fourth Circuit Court of Appeals determined general contractor Commercial Interiors Inc. and subcontractor J.I. General Contractors Inc. were “joint employers” in their work together, which could make Commercial Interiors liable for J.I.’s failure to fulfil FLSA overtime requirements. The judgement was made last month in the case Mario Salinas vs. Commercial Interiors, Inc. and J.I. General Contractors, Inc.

According to court documents, J.I., a now-defunct framing and drywall installation subcontractor owned by brothers Juan and Isaias Flores Ramirez, directly employed plaintiffs Mario Salinas, William Ascencio, Bernaldino Salinas and Franklin Henriquez as drywall installers. During its existence, J.I worked almost exclusively for Commercial Interiors, which offered general contracting and interior finishing services, including drywall installation, carpentry, framing and hardware installation.

According to the court’s notice of judgement, the “joint employers” determination was made based on the following factors:

  • Plaintiffs performed nearly all of their work on Commercial jobsites and for Commercial’s benefit;
  • Commercial provided the tools, materials, and equipment necessary for Plaintiffs’ work, with Plaintiffs providing only small, handheld tools;
  • On at least one occasion, Commercial rented a house near the jobsite for J.I. employees to stay in during a project;
  • Commercial actively supervised Plaintiffs’ work on a daily basis by having foremen walk the jobsite and check Plaintiffs’ progress;
  • Commercial required Plaintiffs to attend frequent meetings regarding their assigned tasks and safety protocols;
  • Commercial required Plaintiffs to sign in and out with Commercial foremen upon reporting to and leaving the jobsite each day;
  • Commercial foremen frequently directed Plaintiffs to redo deficient work, communicating problems to J.I. supervisors who translated the information to Plaintiffs;
  • Commercial foremen told certain Plaintiffs to work additional hours or additional days;
  • Commercial communicated its staffing needs to J.I., and J.I. based Plaintiffs’ jobsite assignments on Commercial’s needs;
  • When J.I. performed certain “time and materials” work for Commercial and was paid on an hourly, rather than lump-sum, basis, Commercial told J.I. how many of its employees to send to the project and how many hours those employees were permitted to work;
  • Commercial provided Plaintiffs with stickers bearing the Commercial logo to wear on their hardhats and vests bearing Commercial logos to don while working on Commercial jobsites;
  • J.I. supervisors instructed Plaintiffs to tell anyone who asked that they worked for Commercial;
  • Commercial provided J.I. supervisors with Commercial-branded sweatshirts to wear while working on Commercial projects;
  • On at least one occasion, Commercial required J.I. employees to apply for employment with Commercial and directly hired those employees.

In a legal analysis at JD Supra, H. Arthur Bolick II and John Ormand III of the firm Brooks Pierce suggest general contractors and “higher-tiered subcontractors” should take note of the decision and “carefully examine their relationships with all of their subcontractors, particularly those with whom they work closely on a regular basis.”

They write, “If a subcontractor is potentially violating the FLSA, based on the Salinas decision, there is now a significant risk of exposure for the general contractor or higher tiered subcontractor on the project if they exercised too much influence or control over the subcontractor’s work. The Fourth Circuit explicitly recognized that some measure of oversight and quality control was necessary in construction, and that a contractor ‘does not become a joint employer by engaging in the oversight necessary to ensure that a contractor’s services meet contractual standards of quality and timeliness.’ At the same time, however, the court deemed Commercial’s daily oversight and feedback regarding the pace and quality of J.I.’s employees work crossed the line.

“How much supervision is too much? The Fourth Circuit seems to have left the lower courts with, essentially, a ‘you know it when you see it’ standard where even one factor may tip the scales to determining that a contractor is a joint employer for purposes of the FLSA.”

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