The Labor Department has taken a new, more business-friendly stance on whether companies should be viewed as “joint employers” of workers hired by subcontractors while on a job for a general contractor.
While President Obama was still in office, the agency last year issued guidelines that broadly interpreted the meaning of “joint employment,” where two or more employers share responsibility for ensuring that workers are paid the minimum wage and overtime. The government aggressively investigated violations and recouped millions of dollars in back wages for workers.
The Labor Department has now retracted the Obama-era standard.
Does this mean that GCs can now relax? That they’ll no longer be held accountable when their subcontractors, for whatever reason, run into trouble with the Fair Labor Standards Act?
Seth Harris, former deputy secretary of the Labor Department, said that withdrawing the labor standards alone likely won’t carry much weight because they didn’t have the force of law in the first place.
“Rescinding (the standard) has no effect on the law of joint employment,” Harris told the Los Angeles Times. “If anything, it makes it harder for employers, because they don’t know clearly what standards they should apply.”
Beyond OT violations, FLSA claims can arise in a number of ways including failure to record all hours actually worked, failure to compensate for meal breaks where the employee is not completely relieved of all duties to enjoy uninterrupted time for the meal, and failure to pay for travel from shop to work-site and back.
No GC, of course, ever intends to hire a subcontractor who decides not to pay their workers overtime or skips out on payroll altogether. Unfortunately, subs sometimes do just that and the consequences can quickly wipe out a GC’s profits.
The issue becomes a problem for GCs when they step in for errant subs.
Frustrated GCs have been known to take on the day-to-day management of a sub’s workers when they see shoddy workmanship or when a project falls behind schedule.
The GC will issue direct orders to the sub’s workers, ordering them to appear on the site at a certain hour and spelling out directions on how to complete the job.
All of those responses, while they might seem reasonable, leave the GC exposed to FLSA claims.
A recent case in Louisiana illustrates the issue. Four employees of a subcontractor sued both the subcontractor and the GC for alleged wage and OT violations. A motion to dismiss the claims was denied and the suit proceeded against the GC because the supervisor at the GC exercised direct control over the workers and exercised direct control over their work.
None of the workers was directly employed by the GC, but the GC is considered a “joint employer” and was thus considered liable.
So, what can a GC do to minimize their exposure to the employment practices of subcontractors? A few things. Among them, they can:
- Require subcontractors to sign and acknowledge their responsibilities under FLSA.
- Include indemnity provisions in the event of FLSA violations.
- Ensure that workers’ compensation insurance is in place for the subcontractor and that all workers on the jobsite are covered under the policy. Ask the sub for their work comp certification or “cert.”
Finally, if you’re a GC, perhaps the most important thing to do may be the most difficult: avoiding direct supervision of the sub’s workers.
Eric Gabrielsen is a CCIG Insurance Adviser. Let him know if you have questions or concerns. Reach him at EricG@thinkccig.com or 720-212-2027.