In a decision with potentially huge ramifications for the construction industry, the Fourth Circuit Court of Appeals found that employees of a framing and drywall subcontractor were also the employees of a general contractor for purposes of federal employment laws. Therefore, contractors might find themselves on the hook for their subcontractors’ violations of the law, even if the general contractor had nothing to do with the alleged violation.
In Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (2017), several employees of J.I. General Contractors, Inc. (“Subcontractor”) filed a lawsuit against Subcontractor and a general contractor, Commercial Interiors, Inc. (“GC”) for Subcontractor’s failure to pay the employees proper overtime wages. The issue before the Court was whether GC was a “joint employer” of Subcontractor’s employees. Since Subcontractor was defunct with no money to pay a judgment, the GC was their only means of recovery.
The trial court dismissed the case against the GC because the GC and Subcontractor entered into a “traditionally … recognized,” legitimate contractor-subcontractor relationship that did not attempt to avoid the law. This rationale is consistent with industry expectations that when a general contractor hires a subcontractor to do work, although there is some supervision required of the subcontractor, the general contractor does not take on legal responsibility for the subcontractor’s workers.
However, on appeal, the Fourth Circuit found that the GC was a joint employer and stated that the legitimacy of the business relationship was not the most important factor. Instead, a general contractor (or any other company) is a joint employer when (1) it shares responsibility for the terms and conditions of a worker’s employment, and (2) the two entities’ combined influence renders the worker an employee rather than an independent contractor.
The factual allegations supporting the Court’s decision were as follows:
- GC threatened to fire a Subcontractor employee on at least one occasion;
- On some jobs, Subcontractor employees worked directly for GC, blurring the distinction between the two;
- GC had close control over the schedules of the Subcontractor’s employees; and
- Subcontractor’s employees wore GC’s clothing/logo while on site.
What does all this mean? This decision is scary for general contractors because it could signal the beginning of the end of the legal distinction between your employees and your subcontractor’s employees on a particular job. However, the more likely (and hopeful) explanation is that this case is an outlier because of the particular facts.
Regardless, there are a couple of important takeaways for construction companies:
- Make sure your contracts are airtight with the correct language on the independent contractor relationship, strong indemnification provisions, and robust insurance requirements; and
- Avoid actions like those taken by the GC in the Salinas case that could be interpreted as controlling the subcontractor’s workers.