The issue of “joint employment” arises in a few different contexts and can impact many of you. It drew a lot of attention during the Biden administration, especially in the franchise/franchisor world. Every time there is an administration change, the National Labor Relations Administration (NLRA) changes its stance on the relationship between franchisors and franchisees, and no doubt, the NLRA will change its stance under the current administration. Those of you who operate in this arena may keep track of the decisions that impact this universe.
However, the joint employment laws govern so many more arenas, especially here in California, where the case law and statutes have been definitive now for years. So please, read carefully, as I am still seeing many of you confused about how these pieces all fit together.
First is the area of staffing companies, PEOs, or “temporary agencies”. The entire concept of employee “staffing” companies first arose back in the 1990s in response to the worker’s compensation crisis, when employers faced skyrocketing costs and claims. Offloading staff onto another company with a lower “ex-modification” was often a way suffering employers could keep costs down. Soon, these staffing companies were emerging everywhere, claiming they were the salvation to the out-of-control workers’ compensation nightmares. And admittedly, well run staffing companies can serve a very legitimate purpose is some employment contexts, especially with seasonal or cyclical workforce issues.
But California made it clear from the start – if an employer used a leasing company to staff its workforce, that relationship created a JOINT EMPLOYMENT work situation. Those employees were employees of BOTH the staffing company AND the employer. The staffing or leasing company was the GENERAL employer, and the employer was the SPECIAL employer. This is true even if the employee is a TEMPORARY employee.
You can have an agreement with the staffing company that the staffing company will be responsible for the workers’ compensation insurance for those employees. But that is a contractual agreement. By law, that employee can still sue either or both of you. And by law, both you and the staffing company are liable for any other employment action, such as harassment, discrimination, or wage and hour violations. We often see both employers named in lawsuits, regardless of the language of your contract.
Who indemnifies who is determined by that contract. Have you read yours lately? If you have not, I suggest you do. Better yet, let us. But even so, your indemnity agreements are only as good as the financial foundation of that staffing company and their ability to defend and indemnify you. Companies that provide cheaper pricing may be cutting corners, and that is a red flag.
Staffing or leased employees are ALWAYS your employees, and you should have employee handbooks signed by all these workers, even if your staffing companies provide a handbook. I have yet to see a staffing company handbook I prefer (unless we represent the staffing company, and yes, we do represent a few). The handbooks we write are drafted to include staffing employees. Please, please, get them signed by ALL your employees, even your temps. Otherwise, your temps could be your next class action reps. They only must work for you for a few days to represent ALL of your employees in a class action. Ask me how I know.
Next joint employment situation – different (related) entities operating under the same management company. We see this most commonly in hospitality, but also in property management and retail, sometimes manufacturing. Usually, these are related entities that are separately owned LLC or LLPs, usually with some common ownership, operating under the same management umbrella. The management company is responsible for accounting services, insurance services, legal, and human resources. Sometimes management personnel from the different entities are even employed by this management company. Most often, the management company issues the employee handbook to all the different operating entities who employ the rank-and-file employees, other than the “corporate employees,” who work for the management company.
When you have a situation like this, for most purposes, California law will assume that all these separate entities are joint employers with each other, and all the employees are jointly employed. Their ownership structure does not matter. Because you have one management company making decisions for all these entities, there is joint management. It does not matter that there are individual general managers at each location, for example.
When and why does this become an issue? For one, if you have an employee working at two locations within the same group. That employee will be considered to be working for the same employer, even if there are different employer EINs and you have different personnel files. If they are joint employers, all those worked hours should be counted together. If that employee works more than 40 in a workweek or over eight in a day, there is overtime. If there is travel between locations on the same workday, there is travel time (and travel pay). It does not matter that if this employee were working somewhere else, it would not be overtime. They are working for you. It is overtime. This is how the law sees it.
It also means that a plaintiff’s attorney can bring all these different entities and employees under the same umbrella in a Private Attorney’s General Act (PAGA) lawsuit, and they do. Even if these are different concepts operating different kinds of operations. PAGA allows claims to cover “all aggrieved employees” of the employer, even if they are not performing the same kinds of work. This is true under the PAGA Reform.
Related issue – third party employees working on your premises. In 2014, then Governor Brown signed into law the Wage Theft Protection Act, embodied in California Labor Code Section 2810. Many of you know Section 2810.5, which dictates that employers provide all non-exempt employees with a containing various employment information. But there is another subsection of this Act, Section 2810.3, which makes employers liable for the Labor Code violations of the third party workers providing labor services as part of the ordinary course of their business. These can include maintenance or janitorial services, for example. In theory, it may also include valet or delivery drivers.
This is not a joint employment theory, but it works similarly. Even if these workers are employed by a legitimate third-party contractor, providing cleaning services after hours, you could be liable for these violations. What does that mean? It means you had better carefully screen those contractors you use to provide these services, and at a minimum, have a strong indemnification agreement with them. Back in 2018, the California Labor Commissioner found Cheesecake Factory liable for $4.6 million dollars for “wage theft” of 559 janitorial workers employed in eight Cheesecake Factory restaurants in Orange and San Diego counties. The workers were employed by Magic Touch Commercial Cleaning, a sub-contractor of a janitorial contractor, who was also fined by the state. Even though the workers were not employees of Cheesecake Factory, and it was not even argued they were joint employees, Cheesecake Factory was found liable under Section 2810.3.
This decision was widely publicized back in 2018, and it caused many employers to rethink their contracted labor services. But it’s now been seven years since that decision, and I find that many of my clients are unaware of this little quirk in California law. Consider yourselves educated. Review your agreements with your contractors accordingly.
