Salinas: A Federal Circuit Court Decision Linking a General Contractor to Unpaid FLSA Overtime Benefits Owed to Subcontractor Employees

North Carolina’s federal appellate circuit court issued a 2017 employment law decision which is causing ripple effects in the construction industry concerning the way general contractors structure their subcontractor relationships.  In Salinas v. Commercial Interiors, the 4th Circuit issued a decision whereby it found that a general contractor was effectively responsible for the unpaid overtime benefits owed to a subcontractor’s employees.  The two constituted a “joint employer”.

The Court issued a detailed opinion which ultimately set out a test for determining joint employment under the Fair Labor Standards Act (FLSA).  The two-step test first looks into the relationship between the subcontractor and contractor entities.  The second step looks into whether the worker constitutes a worker or independent contractor.“ 

As to the second test question, the Court determined that the independent contractor v. employee question represented an issue for the jury. 

In regards to the first question (gc-sub relationship), the Court issued six non-exclusive factors: (1) Whether the putative joint employers together determine the power to direct control, or supervise the worker’; (2) Whether the putative joint employers together determine the power to hire or fire the worker or modify the terms or condition of employment; (3) The degree of permanency and duration of the relationship between the putative employers;  (4) Whether, through shared management or ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer; (5) Whether the work is performed on a site owned or controlled by one or more of the putative joint employers; or (6) Whether the putative joint employers together determine responsibility over functions ordinarily carried out by an employee, such as handling payroll, providing workers’ compensation insurance, paying  payroll taxes, or providing the facilities, equipment, tolls or material necessary to complete the work.

The Court analyzed the Salinas general contractor–subcontractor relationship and found the following facts important: (i) the sub worked primarily for the gc; (ii) the gc provided tools, materials, equipment, and foreman supervision; (iii) the gc required the sub employees to attend its safety meetings; (iv) the gc required sub employees to clock in/out with the gc on a time and material basis; (v) the gc provided the sub employees with hard hats, vests, sweatshirts in the gc’s name; and (vi) the gc even instructed the sub employees to indicate that they worked for the gc if asked.  The Court found that the overwhelming control deemed the general contractor a joint employer responsible for providing FLSA benefits to the subcontractor’s employees. 

Most importantly, the Fourth Circuit issued clear guidance for future general contractors to consider.  The Judges stated: “[W]hen—as here—a general contractor contracts work out to a subcontractor that directly employs workers, the general contractor will face no FLSA liability so long as it either (1) disassociates itself from the subcontractor with regard to the key terms and conditions of the workers’ employment or (2) ensures that the contractor “cover[s] the workers’ legal entitlements” under the FLSA.

Wise general contractors should consider these tips when structuring their subcontractor relationships.  They might mitigate their risks as a result.