Over the last several years, there has been quite a push to broaden who is considered an employee – as well as who is considered an employer – under relevant federal (and even state) laws.  For instance, the Department of Labor has stepped up its efforts in singling out employers who misclassify workers as independent contractors.  Their recent memo on this subject – which we wrote about here – is the most recent evidence of that.  The National Labor Relations Board has also been active in this general area, issuing complaints against McDonald's arguing that a number of its franchisors have as much control over employees as the franchisees do, and therefore are just as legally responsible for ensuring compliance with certain employment laws.  These arguments have been advanced by more than just government agencies, however.  They have been made by private plaintiffs under anti-discrimination law, too.

In a recent Fourth Circuit opinion, Butler v. Drive Automotive Industries of America, Inc., No. 14-1348, 2015 WL 4269615 (4th Cir. 2015), the court found that two parties can be considered joint employers under Title VII.  In reaching that conclusion, the Fourth Circuit adopted a new employee-friendly “hybrid test” to determine whether a company qualifies as an employer.  Employers everywhere – but especially those in the Fourth Circuit, including in West Virginia – should pay particular attention to this decision because it increases potential liability for them.  This is especially true for employers who use contract or temporary employees through staffing agencies.  Let’s take a deeper look at the case.

In Butler, the Plaintiff, Brenda Butler, was hired by ResourceMFG, a temporary employment agency, to work at Drive Automotive in Piedmont, South Carolina.  Butler sued ResourceMFG and Drive Automotive alleging sexual harassment under Title VII of the Civil Rights Act of 1964.  She alleged that her supervisor made constant, inappropriate comments about her body.  Additionally, she alleged that after she reported an altercation in which Butler’s supervisor called her an inappropriate name and told her to go home, she was referred to ResourceMFG for termination.  Further, Butler alleged that her supervisor called before she was terminated and suggested that he could save her job if she performed sexual favors for him.  Soon thereafter, she was terminated by ResourceMFG.  The key issue in the case was not whether the temp agency, ResourceMFG, was Butler’s employer – that was undisputed – but was whether Drive Automotive also was considered her employer.

The District Court for the District of South Carolina, where the case was originally filed, dismissed Butler’s claims against Drive Automotive, finding that Drive Automotive was not Butler’s “employer” under Title VII because it did not “exercise sufficient control over Butler’s employment.”

On appeal, the Fourth Circuit formally adopted the joint employer doctrine for Title VII claims.  The Fourth Circuit stated that two parties can be considered joint employers and therefore both be liable under Title VII if they “share or co-determine those matters governing the essential terms and conditions of employment” over the same employees.  Additionally, the Fourth Circuit adopted a nine-factor “hybrid test” to determine who qualifies as an “employer” for Title VII.  The test is based on traditional common-law elements of control, as well as an “economic realities” test which has long been a factor used by the Department of Labor in issuing determinations in this area.  The nine factors are as follows:

(1) Authority to hire and fire the individual;

(2) Day-to-day supervision of the individual, including employee discipline;

(3) Whether the potential employer furnishes the equipment used and the place of work;

(4) Possession of and responsibility over the individual’s employment records, including payroll, insurance, and taxes;

(5) The length of time the individual has worked for the potential employer;

(6) Whether the potential employer provides the individual with formal or informal training;

(7) Whether the individual’s duties are similar to a regular employee’s duties;

(8) Whether the individual is assigned solely to the potential employer; and

(9) Whether the individual and potential employer intended to enter into an employment relationship.

According to the Fourth Circuit, the first three factors are most important.  However, the Court added that no one factor is determinative and courts can alter the test to fit specific industry contexts. In doing so, the Court said, the amount of control over the individual remains the principal guidepost in the analysis, with the first factor – the ability to hire and fire – being the most important to determine ultimate control.  In a footnote, the Court observed that the use of a form which disclaims an employment relationship will not defeat a finding of a joint employer relationship.

After setting out the new test, the Fourth Circuit concluded in Butler’s case that, while control remained the most important factor in the analysis, Drive Automotive was also Butler’s employer despite not having authority to hire, fire, discipline, or pay Butler.  In so concluding, the Fourth Circuit considered the aggregate circumstances, and found important the fact that Drive Automotive was responsible for determining Butler’s work schedule, training Butler, and supervising Butler’s work.

While these situations are always examined on a case-by-case basis, it’s hard to dispute that, in applying its new “hybrid test” and reaching the conclusion it did in Butler, the Fourth Circuit essentially created a very low threshold to qualify as an employer.  That, in turn, will make more entities – particularly in contracting and temporary relationships – more likely to be considered employers, including in discrimination claims under Title VII.

With another employee-friendly ruling from the Fourth Circuit court, businesses need to be especially vigilant about their employment practices in this area, which is why consulting competent counsel on the subject is becoming increasingly important.  At minimum, review your contracts and your policies to ensure that the practices you apply to your workers truly demonstrate and maintain the legal relationships which you wish to use.