The trucking company (aka Carrier) will often enter into an independent contractor operating agreement with the independent contractor (aka Contractor). The carrier has the motor carrier authority, and the contractor has the equipment which will run under the carrier’s authority. This is typical stuff we are all familiar with.
The Independent Contractor Operating Agreement will usually contain language that makes it clear that the contractor is independent of the carrier, and that the contractor is responsible for their employees and the contractor’s employees are not the carrier’s employees. There also will usually be language in the contract that requires the contractor to hold the carrier harmless in the event of a dispute with the carrier’s employees.
Unfortunately, the contractor is putting drivers into the contractor’s trucks and referring to them as independent contractors. But, as is so often the case, those drivers aren’t independent and they are in fact common law employees. Furthermore, The contractor is not paying for Worker’s Compensation, nor providing legal and accurate wage statements wage that are in compliance with numerous Federal and California Labor codes. Maybe the contractor isn’t even paying their drivers what they owe them. In other words, the Contractor is operating illegally and is a ticking time bomb of liability.
Then, of course, one of the contractor’s employees (misclassified or otherwise) gets hurt and, because there is no workers compensation insurance in place, he or she hires a lawyer and files a Worker’s Compensation claim. That same employee may also realize that the contractor is violating various Labor Code laws and goes on to file a labor board claim, or, hires a plaintiff’s lawyer to file alawsuit alleging numerous labor code violations.
In other words, The contractor is an a whole lotta trouble. What about the carrier?
The Sins of the Contractor Are Visited Upon the Carrier
Pardon the Old Testament reference where the sins of parents fall upon their children, and while it is true that modern day society does not hold children responsible for their parents’ misdeeds, modern day society is more than happy to hold General contractors responsible for the misdeeds of their subcontractors. This is especially true when it comes to labor law issues, including misclassification of employees as independent contractors, workers compensation and labor law liability. The issue is referred to as the “joint employer doctrine“. And while its origins do not come from the Old Testament, Pro-labor/pro-employee rights groups are more than happy to use this doctrine to rain hell down upon employers. Looking to our common place example above, plaintiff’s lawyers and governmental agencies will attempt to hold the Carrier responsible for the Contractor’s illegal behavior.
So what is joint employer liability?
The general rule is that only the employee’s “employer” (the Contractor in our example) is liable for wage and hour violations. However, the definition of “employer” is an evolving area of the law. California’s legislature, federal agencies, and courts have expanded traditional definitions of the employment relationship. The expansion helps workers recover wages, penalties and damages from entities that did not hire them (the Carrier in our example above). In California, AB 1701, effective January 1, 2018, makes general contractors liable for their subcontractors’ employees’ wages and benefits if the subcontractor fails to pay.
Subcontracting and trucking may involve multiple entities responsible in some way for employment conditions. When businesses are otherwise separate legal entities, they may be considered “joint” employers. Parents and subsidiaries, and sometimes even individuals, may be deemed “single employers” or “alter egos.” A primary purpose of these doctrines is to expand liability and, often, find a capitalized pocket that can finance an adverse judgment or a settlement.
Hence, if your irresponsible Contractor is broke, the courts and employee’s lawyers will attempt to hold the Carrier responsible for the Contractor’s wrongdoing.
The California Supreme Court set out the factors that can create a joint employer relationship in Martinez v. Combs
. Under this test, to “employ” means (1) “to exercise control over… wages, hours or working conditions,” (2) “to suffer or permit to work,” or (3) “to engage, thereby creating a common law employment relationship.” The court in Ochoa v. McDonald’s Corp.
explained that “[a]ny of the three is sufficient to create an employment relationship.”
In addition to the factors that California courts apply, employers must understand the federal framework that could also apply to employees by the Department of Labor in enforcing the FLSA and other federal laws.
Under California law, an entity can be held liable under the joint employer theory if it “directly or indirectly, or through an agent or any other person, employs or exercises control” over their wages, hours, or working conditions. While this standard is potentially broad in scope, courts have limited its reach in holding that entities that may be able to influence treatment of employees but that do not have any actual “authority to directly control their wages, hours or conditions” are not joint employers. Ochoa v. McDonald’s Corp
. The court in Ochoa explained that the California Court of Appeal in Futrell v. Payday California, Inc
. held that “control over wages means that a person or entity has the power or authority to negotiate and set an employee’s rate of pay, and that an entity that does not control the hiring, firing, and day-to-day supervision of workers is not an employer.
The Feds utilize a more lenient test for Joint Employer liability. The NLRB, with court approval, has made clear that “the essential element” in a joint-employer analysis “is whether a putative joint employer’s control over employment matters is direct and immediate.” Airborne Express, 338 NLRB 597, 597 (2002) (finding that Board erred by failing to adhere to the Board’s “direct and immediate control” standard); SEIU Local 32BJ v. NLRB, 647 F.3d 435, 442-443 (2d Cir. 2011) (“An essential element of any joint employer determination is sufficient evidence of immediate control over the employees.”) (quoting Clinton’s Ditch Co-op Co. v. NLRB, 778 F.2d 132, 138 (2d Cir. 1985)); Summit Express, Inc., 350 NLRB 592, 592 fn. 3 (2007) (finding that the General Counsel failed to prove direct and immediate control and therefore dismissing joint-employer allegation); Laerco Transportation, 269 NLRB 324 (1984) (dismissing joint-employer allegation where user employer’s supervision of supplied employees was limited and routine). Hence, the Carrier would need to vigorously argue they do not exercise Direct and Immediate control over the Contractor’s employment activities.
I would also argue Federal Preemption: The National Labor Relations Board (NLRB), sets the standard for determining joint-employer status under the National Labor Relations Act (NLRA). As a reminder, the NLRA covers all employers involved in interstate commerce (subject to certain jurisdictional limits), except airlines, railroads, agricultural operations and government entities, which are governed by other federal or state laws (i.e., the Railway Labor Act, the California Agricultural Labor Relations Act, etc.).
If the Contractor is Misclassifying, does that mean the Carrier is too?
In a recent case where the plaintiff (employee) tried to hold the “General” liable for the “Sub’s” misclassification, the Fourth Circuit Court of Appeal rejected a Plaintiff’s argument that the Dynamex “ABC” test could be applied to show that a worker was an employee in an alleged joint-employment scenario. The plaintiff claimed that she was misclassified as an exempt employee and was thus denied payments for overtime and missed meal and rest breaks. In addition to suing her employer, the plaintiff also sued the general contractor, alleging that the General was a joint employer. The plaintiff argued that the “ABC” test should be applied to show an employee-employer relationship in the joint-employer dispute.
The court rejected the plaintiff’s argument and limited the application of the “ABC” test to situations involving the misclassification of independent contractors. Leaning heavily on the policy reasons cited by the California Supreme Court in Dynamex, the court concluded that “placing the burden on the alleged employer to prove that the worker is not an employee is meant to serve policy goals that are not relevant in the joint employment context.” The court went on to analyze the employment relationship using the more familiar eight-factor common law test, allowing for more flexibility. This narrow application of the Dynamex decision is good news for employers.
Joint-Employer Law Remains Murky and Complicated
If you are concerned about being liable for what your Independent Contractors are doing in their own businesses, you should sit down with an experienced Transportation Attorney
to determine your risk of exposure.