Joint employer liability: It’s important to document and stay in your lane
It can be difficult to comprehend the difference between what it takes to sue based on joint employer liability compared to the amount of work to escape liability in that suit. Frankly, bringing a joint employer suit is relatively easy – it requires a small checkbook and some assertions. Escaping liability and winning that suit requires initial and ongoing planning and attention to the little details of your business relationships, not just the relationship with your employees (and many times, a bigger checkbook).
The key to preventing joint employer liability to is to ensure that only the employer controls the material aspects of the employment relationship.
Recently, Judge John Mendez of the United States District Court, Eastern District of California carefully analyzed both the facts and the law in relation to a multi-party joint employer lawsuit, Ogogo v. JayKay, Inc. et al.
The lawsuit asserted joint employer liability by three companies. One actually employed the employee, one assisted with onboarding and the third processed payroll. The suit also asserted that the structure of the business relationships between the companies was designed to prevent joint employer liability and therefore was a scheme to violate the law. The defendants sought dismissal of the lawsuit, asserting that Cheri Ogogo, the plaintiff, had not made a proper claim.
Ogogo alleged the defendants “carried out a joint scheme, business plan or policy” requiring class members “to follow practices and policies impacting [employees’] day to day activities,” and that these “interrelated business structures and functions” “work[ed] as a subterfuge” to prevent aggrieved employees “from bringing claims against their joint employers.” With nothing more than bare allegations, in the lawsuit, Ogogo alleged the defendants were authorized to “fire, demote, and discipline.” To support her claims, Ogogo cites:
- The employment agreement she signed with JayKay to work as an at-will Clinical Lab Scientist at Pleasant Valley State Prison.
- An onboarding email with reporting instructions sent by Management Solution with the subject “SOL 1st day start instructions CLS Chari Ogogo” ( “onboarding email”).
- Her wage statement, bearing each defendant’s company name.
Ogogo brought eight claims against all three defendants:
- Failure to pay minimum wages
- Failure to provide off-duty meal periods and/or pay meal period premiums;
- Failure to provide off-duty rest breaks and/or pay missed rest break premiums
- Failure to provide complete and accurate wage statements
- Failure to identify the name of the employer on the wage statements
- Failure to pay all wages due to former employees upon termination “waiting time penalties”
- Unfair business practices
- PAGA relief and other penalties
The court carefully reviewed the claims, dismissed the case as to two of the defendants (the onboarding company and the payroll company), and in doing so clearly articulated the general state of what must be alleged in order for a joint employer case to proceed beyond the motion to dismiss stage:
- The claiming party must provide facts to support the claims.
- The party bringing suit must allege the basis of the claim against each named defendant and must also specifically identify the activities and violations by each defendant.
- Critically, the party suing must assert how the particular defendant controlled the employment relationship…..“[C]ontrol over how services are performed is an important, perhaps even the principal, test for the existence of an employment relationship.”
Some relationships are too attenuated to create employer liability. For instance, a franchisor is not a joint employer because it requires a franchisee to use timekeeping software, hires business consultants to monitor and advise the franchisee, and recommends different crew schedules and staffing protocol. Similarly, a payroll processing company that generates paychecks, completes timecards, conducts employment eligibility verifications, and other human resources tasks is not an employer of the hiring company’s employees. The payroll processing company does not control wages, meaning they do not exercise the “power or authority to negotiate and set an employee’s rate of pay.” In the context of an employer that contracts with another entity like a payroll company, an employee cannot sue the payroll company for an alleged breach of its obligations under its contract with the employer.
A similar analysis was performed by the Judge Cathy Bissoon of the United States District Court, Western District of Pennsylvania in March 2019 when she found joint employer status did not exist and found in favor of a franchisor on joint employer claims. In her case, a franchise relationship was analyzed to determine whether a joint relationship existed.
Although the franchisor provided a system of uniformity for all franchisees to follow, the court found that following that system didn’t not equate to joint employer status. Of particular importance to the court in making her determination was that although the franchise agreement allowed the franchisor the right to do things, the franchisor did not exercise those rights or establish control over the business of the franchisee or its employees. In fact, the franchisor did not create or enforce the employee manual, the franchisor was not involved in the day to day management of the store or oversight of the employee, the franchisor was did not create forms used by the franchisee, the franchisor did not handle customer complaints about a particular employee. All of these facts lead the court to find joint employer status did not exist and therefore rule in favor of the franchisor.
With each passing month, the law begins to crystalize. As it does, it becomes clear that joint employment status is heavily fact driven. Because of this, it’s critically important for the actual employer and third parties with whom the employer work to clearly document their roles and to do what is necessary to stay within the defined roles.