When does a business become the employer of its contractor’s employees? Well, generally, that happens only when the contractor fails to pay its employees in accordance with the Fair Labor Standards Act, and those employees name you as an additional defendant in their suit to collect back wages. Although there are a number of standards used by courts to determine if the business is a “joint and integrated employer,” many courts adopt rules which make liability pretty hard to avoid.

In a recent federal court case from Maryland, the court found that Verizon was indeed a joint employer with its contractor Utilities Maldonado, Inc. The court relied on such facts as the training Verizon provided to all of its cable installation contractor’s employees regarding OSHA requirements and the tasks required to properly install cable. The employees reported for work at Maldonado’s shop, and were then transported to the Verizon installation location. Mr. Maldonado was present at the work site each day and gave orders to his employees. Verizon supervisors were also present to monitor the work and gave orders if Maldonado was not there or if there was an emergency. Verizon thought it was just doing a good job of quality control.

Here’s the rub. The Maldonado employees were typically working 12 to 16 hours a day, 5 or 6 days per week. Maldonado, however, paid for only 10 hours per day, all at the straight time rate. In addition, Maldonado made payroll deductions for state and federal taxes, but forgot to remit those taxes to the government. After a couple of years, the employees had had enough, quit and brought suit against Maldonado, Verizon and others. Maldonado, of course, quickly fled and Verizon was left holding the bag.

The FLSA defines “employer” as any person acting directly or indirectly in the interest of an employer in relation to an employee. The FLSA regulations provide that “where the employee performs work which simultaneously benefits two or more employers” a joint employment relationship will be considered to exist. And, although at least one court has held that a general contractor/subcontractor relationship does not necessarily establish joint employment, it does not preclude that possibility.

Given the variety of standards used to determine a joint employer relationship, we can’t offer any specific advice on how to ensure quality control over your contractors without getting caught in this trap. But, we believe that sound business practices will go a long way to protect you from inheriting the liability of an unscrupulous contractor. Put your contractors on notice, through a written contract if you have one, that they are required to comply with state and federal wage and hour laws, and include a provision that requires the contractor to indemnify you if you are required to pay any wages the contractor should have paid. And, periodically review some of your contractor’s payroll records to make sure that wage and hour requirements are being met. This is particularly important when you know that your contractor’s employees are working overtime, or you have some reason to suspect the employees are not being paid minimum wage.

By Rebecca M. Fowler, rfowler@dsda.com