Subcontracting Work Out to Third Parties Could Still Lead to Joint Employer Liability for Companies
OverviewOn August 7, 2014, the Washington Supreme Court unanimously adopted the "economic reality" test to determine whether a joint employment relationship exists under Washington's minimum wage act ("MWA"), chapter 49.46 RCW in Becerra et al. v. Expert Janitorial LLC and Fred Meyer Stores, Inc. (Case No. 89534-1).
In Becerra, the plaintiffs worked as independent contractors (the validity of that classification was not at issue on appeal) for subcontractors who provided janitorial services to Expert Janitorial LLC. Expert then had a contract with Fred Meyer to provide janitorial services in Fred Meyer stores in the Puget Sound while those stores were closed and locked at night. None of the plaintiffs were formally employed by Expert or Fred Meyer. The plaintiffs were regularly required to work more than eight hours per day because they were locked in the store and could not leave until the Fred Meyer employees reviewed their work and signed them out the next morning. The subcontractors paid the plaintiffs less than the minimum wage and did not pay them overtime.
The plaintiffs sued the subcontractors, Fred Meyer and Expert for violation of the MWA among other things. Fred Meyer and Expert moved for summary judgment on the grounds that they were not the plaintiffs' employers. The trial court applied the joint employment test set forth in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465, 1469 (9th Cir. 1983) and granted summary judgment as to both, primarily on the ground that they were not involved in the hiring and firing of the plaintiffs.
The plaintiffs' appealed the trial court's summary judgment orders. The Court of Appeals reversed. Expert and Fred Meyer petitioned for review.
The Washington Supreme Court confirmed that the MWA is "remedial in nature and is liberally construed." *8. Washington courts "look to FLSA jurisprudence in interpreting our act." *8. In reviewing that jurisprudence, the court adopted the "economic reality" test as set forth in Torres-Lopez v. Robert May, 111 F.3d 633 (9th Cir. 1997). In Torres-Lopez, the Ninth Circuit articulated 13 nonexclusive factors to determine whether a joint employment relationship exists. These factors include, but are not limited to: (1) the nature and degree of control of the workers; (2) the degree of direct or indirect supervision of the work; (3) the power to determine rates of pay; (4) the right to directly or indirectly hire, fire, or modify employment conditions; (5) the preparation of payroll. In addition, the court articulated eight additional "functional factors." The court further cautioned that these factors "are not exclusive and are not to be applied mechanically or in a particular order." In concluding that the trial court did not apply these factors, it remanded to the trial court.
Becerra instructs that a company may be held jointly responsible for compliance with federal and state minimum wage requirements under a "joint employer" theory even if those functions have been subcontracted out. Companies that subcontract work at their facilities, such as janitorial work or other services, should carefully review those contracts and ensure that the subcontractor is responsible for complying with federal and state wage laws and that appropriate indemnification provisions are in place. Simply accepting the lowest bid from a subcontractor without regard to whether those who would be actually performing the job could or would be receiving appropriate pay under federal and state wage laws could lead to joint employer liability if those wages were not paid properly.