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Joint Employer Lessons From Mass. Contractor Test Ruling

Law360

Editor's note: Authored by Charlotte Drew, Bronwyn Roberts and Claire Metcalfe, this article was originally published in Law360.

On Dec. 13, 2021, Massachusetts' highest court held that the multifactor standard of the Fair Labor Standards Act, and not the Massachusetts independent contractor law's so-called ABC test, determines joint employer status under state law.

This decision brings welcome relief for businesses that now have meaningful guidance for structuring their relationships with contractors, service providers and vendors, and limiting their exposure to employment laws in Massachusetts.

Background

In Jinks v. Credico USA LLC,[1] Credico, a client broker for independent direct marketing companies, contracted with DFW Consultants Inc. to provide sales and marketing services, including door-to-door and face-to-face sales services, for Credico's nationwide clients.

DFW in turn hired the plaintiffs as salespeople. DFW classified the plaintiffs as independent contractors, without any input from Credico.

The plaintiffs sought to hold Credico liable under a joint employer theory for their alleged misclassification and violations of Massachusetts wage and hour laws, including failure to pay minimum wage and overtime.[2]

The Supreme Judicial Court Adopts the FLSA Test

The Massachusetts Supreme Judicial Court held that:

  • Massachusetts wage and hour laws "include the concept of joint employment"; and

  • The standard for determining joint employer status is the multifactor, "totality of the circumstances" test applied under the FLSA.

First, the court explained that ordinarily, only the employing entity is liable for misclassification under the wage laws. An exception exists, however, when an entity that does not directly employ the workers is nonetheless a joint employer because it retains sufficient control over the employment terms and conditions for the employees at issue.

The Supreme Judicial Court held that the Massachusetts wage laws, "which neither define 'employer' nor expressly provide for 'joint employers,' include this long-standing concept of joint employment."[3]

Second, the court held that the appropriate test to determine whether an entity is a joint employer is the multifactor, totality-of-the-circumstances test used to determine joint employer status under the FLSA.

Under that test, courts consider the totality of circumstances of the relationship between the employee and the entity,

guided by a framework of four factors: whether the entity (1) had the power to hire and fire the individual, (2) supervised and controlled the individual's work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.[4]

In so holding, the court rejected the plaintiffs' argument that the ABC test should apply. The ABC test, ordinarily employed to determine if a worker can be classified as an independent contractor, asks whether

(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
(2) the service is performed outside the usual course of the business of the employer; and,
(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.[5]

The Supreme Judicial Court explained that the joint employer inquiry "focuses on whether an individual, whose work is controlled by one entity, is also subject to the control of another entity."[6]

In contrast, the ABC test asks "who, if anyone, controls the work other than the worker herself,"[7] as articulated by the U.S. Court of Appeals for the District of Columbia Circuit in its 2018 Browning-Ferris Industries of California Inc. v. National Labor Relations Board decision.

Thus, the FLSA test is better tailored to answer the question presented by the joint employer inquiry.

The Supreme Judicial Court Finds No Joint Employer Status

In affirming summary judgment for Credico, the court held that the plaintiffs could not establish that Credico exercised sufficient control over their terms of employment to qualify as a joint employer, and therefore could not be liable for any misclassification or violations of the wage laws.

The court relied on the two agreements that governed the relationship between Credico and DFW: a 2013 subcontractor agreement and a 2015 services agreement.

The 2013 subcontractor agreement provided that, while DFW employees were required to comply with Credico's business ethics and conduct code, DFW otherwise retained sole discretion with respect to the manner and means of carrying out assignments.

The agreement provided that DFW was responsible for preparing all tax filings, and for workers' compensation, Medicare and Medicaid.

It also provided that payment to DFW would be made in accordance with a commission schedule contained in the agreement, but made no provision for how DFW would pay the plaintiffs.

Credico paid DFW based on types of sales, and DFW was responsible for compensating the plaintiffs pursuant to its own policies.[8]

Likewise, the 2015 services agreement gave DFW sole discretion over the manner and means of its services, and exclusive control over labor and employee relations policies; policies relating to wages, hours and working conditions; and all personnel decisions.

Credico provided DFW with access to a data portal that tracked the number of salespersons working each day and required DFW to ensure that its salespersons complied with certain regulatory requirements, like background checks and nondisclosure agreements.[9]

Moreover, the Supreme Judicial Court noted that although the plaintiffs reported to the DFW office at the beginning and end of each day, the plaintiffs' work was done in the field. The plaintiffs had never met or communicated with anyone employed by Credico or visited a Credico office.[10]

With respect to the fourth factor, maintenance of employment records, the court rejected the plaintiffs' argument that the data portal provided by Credico showed Credico's maintenance of employment records for DFW salespersons.

Rather, the court pointed to evidence in the record that "Credico [did not receive] any reports as to the activity or employment of specific salespersons."[11]

Practical Takeaways for Massachusetts Businesses

Although the Supreme Judicial Court warned that "the determination whether an entity is a joint employer is 'not a mechanical determination'" and all relevant factors are considered,[12] important lessons can be gleaned from this decision that can help businesses structure their relationships with subcontractors and vendors to limit exposure to wage and hour laws.

  • Businesses should consider each of the four factors contained in the FLSA test as they evaluate their contractor and service agreements. Small changes can make a significant difference in avoiding liability under the Massachusetts wage laws, which carry hefty damages and attorney fees.

  • Service agreements should clearly document that contractors, particularly staffing agencies, maintain complete control over the manner and means of employment of workers, including the day-to-day work of performing the services.

  • Service agreements should clearly document that a contractor has the power to hire and fire its workers, and make other personnel decisions, including those related to promotions, discipline, training and staffing. Maintaining control over regulatory or safety requirements is acceptable, but discipline for violations of such policies and termination decisions should remain with the contractor.

  • Businesses should avoid a direct economic relationship with a contractor's employees. All decisions concerning the method and manner of payment of the contractor's employees should be left to the contractor.

The court's decision represents rare relief for Massachusetts employers by narrowing the scope of joint employment, but businesses should still proceed with caution when engaging with staffing agencies to avoid costly violation of the Massachusetts wage laws.


Charlotte Drew is an associate, Bronwyn Roberts is special counsel and Claire Metcalfe is an associate at Cooley LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Jinks v. Credico USA LLC, Case No. SJC-13106 (Dec. 13, 2021).

[2] Jinks v. Credico (USA) LLC, 177 N.E.3d 509 (Mass. 2021).

[3] Id. at 518.

[4] Id. at 513.

[5] Id. at 520 (citation omitted).

[6] Id.

[7] Id.

[8] Id. at 514.

[9] Id.

[10] Id.

[11] Id. at 523.

[12] Id. at 521.

Related Contacts
Charlotte Drew  Associate Boston
Bronwyn L. Roberts  Special Counsel Boston
Claire Metcalfe  Associate Boston
Related Practices & Industries

Employment & Labor  Commercial Litigation