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Under new test, DIRECTV is joint employer of satellite installation techs

By Lisa Milam-Perez, J.D.

Applying the joint employment test that it adopted in a separate decision issued the same day, the Fourth Circuit found satellite installation technicians were jointly employed by the nation’s largest satellite TV provider and the intermediary companies with whom it contracted for installation work. Also, in their “one employment” with the two entities, the technicians were economically dependent on them, and so were employees, not independent contractors, under the FLSA and Maryland wage law. Reversing dismissal of the technicians’ overtime claims, the appeals court found the district court had applied the wrong joint employment test and an unduly high evidentiary burden on a motion to dismiss (Hall v. DIRECTV, LLC, January 25, 2017, Wynn, J.).

Overtime claims. In a pair of consolidated cases—one of a growing number of wage suits against DIRECTV across the country—two groups of satellite television technicians alleged that DIRECTV and DirectSat, with whom the technicians contracted directly, misclassified them as independent contractors under a fissured employment scheme using “a web of agreements” with various affiliated and unaffiliated, “largely captive entities” to perform satellite installation work. DIRECTV was typically the sole client of the various companies that employed the technicians, and it “dictated nearly every aspect” of their work, they alleged, asserting a direct role in controlling their day-to-day job duties and in hiring, firing, and compensation. As such, DIRECTV was their joint employer, and jointly and severally liable for the overtime violations they suffered under a piece-rate compensation scheme.

The district court rejected the technicians’ FLSA and state-law claims against DIRECTV, finding they did not sufficiently allege that DIRECTV and DirectSat jointly employed them. But the district court adopted an erroneous legal test in assessing joint employment, and asked too much of the technicians, pleading-wise, on a motion to dismiss. On appeal, the Fourth Circuit found their factual allegations plausibly demonstrated that the two entities jointly employed them, and that they were indeed employees, not independent contractors.

Inverted inquiry. The court below applied an unduly restrictive joint employment test gleaned from authority outside the circuit, one that was “unduly restrictive in light of the broad reach of the FLSA.” It devised a two-step inquiry, asking first whether an individual is an “employee” of each respective entity (rather than an independent contractor) and then, only if the answer is yes, whether another entity is a joint employer of the individual, along with the entity with whom he or she has a direct relationship. This erroneously put the cart before the horse, and meant that the technicians had to first show they were employees (and not independent contractors) of each putative employer before they could make their case that both entities were their employer.

By incorrectly making the independent contractor question the threshold inquiry, the district court gave insufficient heed to the FLSA’s “remedial and humanitarian” purpose,” the appeals court said. That’s because an individual worker may not be a statutory employee when considering his relationship to two distinct entities separately, but may well fall within the FLSA’s protections when these entities are considered in the aggregate. “[T]he framework deployed by the district failed to take account of a worker’s entire employment when considering whether he or she is covered by the FLSA,” risking broad gaps in coverage where Congress intended protection.

Compounding the error. Apparently finding the technicians were not independent contractors, the lower court then considered whether DIRECTV was their joint employer under the FLSA, using the multifactor test set forth by the Ninth Circuit in Bonnette v. California Health and Welfare Agency. In considering the various Bonnette factors, it asserted that the “‘ultimate test of employment is the hiring and firing of employees and the setting of their compensation amounts.’” However, the Bonnette court itself cautioned that no single one of the stated factors was dispositive. The district court then went on to consider criteria that weren’t even part of the Bonnette framework, looking specifically to whether the intermediary entities “were undercapitalized or slavishly followed every suggestion made by DIRECTV in regard to the status and method of payment of the technicians with whom they had a relationship.” In the end, the court concluded that DIRECTV had merely adopted “a reasonable business model that allowed for the decentralization of decision-making authority regarding the employment of technicians who install its equipment,” and so held a finding of joint employment was unsupported.

But the appeals court rejected the Bonnette test and its progeny in an exhaustive opinion in Salinas v. Consolidated Contractors, issued the same day. [See Court adopts new FLSA joint employer test, finds general contractor and sub jointly liable for overtime]. In applying Bonnette, the district court had ignored crucial elements of the technicians’ employment arrangement with the defendant companies. Instead, it erroneously insisted on a showing of “slavish devotion” to DIRECTV’s mandates on the subcontractor’s part. “The FLSA does not require that an entity have unchecked—or even primary—authority over all—or even most—aspects of a worker’s employment for the entity to qualify as a joint employer,” the appeals court explained. “Rather, the entity must only play a role in establishing the key terms and conditions of the worker’s employment.”

The appeals court also rejected the lower court’s assertion that a majority of factors must weigh in favor of joint employment status to support such a finding. The entirety of the circumstances is the thing, the appeals court noted, and sometimes one factor alone is sufficient enough (such as when an entity has complete control over employees’ work schedules, for example). “This is particularly true at the pleading stage,” it pointed out, when plaintiffs have not yet had the benefit of discovery, and access to the payroll documents, internal communications, and corporate organizational charts that can help them establish the other relevant factors.

Finally, as to the lower court’s pondering whether the relationship between DIRECTV and its subcontractors was “a mere charade,” the appeals court stressed that “bad faith is not a precondition to liability as a joint employer.” At any rate, the plaintiffs here had explicitly alleged bad faith—asserting that the business were structured specifically to evade the FLSA’s requirements—so this was no basis for disposing of their claims anyhow. The court erred in refusing to credit these allegations on a Rule 12(b)(6) motion. Rather, the facts alleged established that the defendants jointly determined the key terms and conditions of the technicians’ employment, at least for purposes of stating a plausible joint employment claim under the Fourth Circuit’s “one-employment” theory. And, turning to the independent contractor question—the proper second step in the inquiry—the appeals court concluded based on the “economic realities” factors that the technicians plausibly alleged they were economically dependent on the defendant entities, and thus were statutory employees.

Pleading standard. One final matter: The defendants argued in the alternative that the technicians failed to give a sufficiently detailed accounting of the number of unpaid overtime hours they ostensibly had worked in order to state a viable claim. Noting that courts are divided as to the level of specificity required in order to evade a Rule 12(b)(6) motion to dismiss an FLSA claim, the Fourth Circuit held that a plaintiff “must provide sufficient factual allegations to support a reasonable inference that he or she worked more than forty hours in at least one workweek and that his or her employer failed to pay the requisite overtime premium for those overtime hours.” What does that mean? Employees must do more than simply say they regularly worked over 40 hours a week without overtime pay; however, they do not have to identify a particular week in which they worked unpaid overtime. All that is needed is “some factual context” that can “‘nudge’ their claim ‘from conceivable to plausible.’”

A plaintiff may meet this initial standard “by estimating the length of her average workweek during the applicable period and the average rate at which she was paid, the amount of overtime wages she believes she is owed, or any other facts that will permit the court to find plausibility.” The technicians satisfied that standard here.