Federal court expands definition of “joint employment” for wage and hour compliance purposes.

The U.S. Court of Appeals for the Fourth Circuit, which makes decisions that are binding on federal courts in Maryland, issued a ruling on January 25, 2017 that will have a significant impact on industries where subcontractors provide labor on projects.

The Fair Labor Standards Act (FLSA) establishes a federal minimum wage, and requires employers to pay “time and a half” overtime to employees that work more than forty hours in a single workweek. The Department of Labor has long maintained regulations recognizing that it is possible for a single worker to serve in the role of an employee to two or more employers at the same time, for purposes of the FLSA. The regulations make a distinction between “separate and distinct employment” of a worker and “joint employment” of a worker by two companies. An employment relationship is “separate and distinct” when two employers act entirely independently of each other, and are completely disassociated from each other with respect to a worker’s employment. Joint employers, on the other hand, are responsible (individually and jointly) for compliance with overtime laws and regulations. The hours that an employee works for each of two joint employers in a single workweek must be aggregated to determine whether, and to what extent, the worker is to be paid overtime. When there is “joint employment,” a worker’s employment by the joint employers is treated as “one employment” for purposes of determining compliance with wage and hour requirements, and the joint employers are held jointly and severally liable for violations.

In the case that was recently reviewed by the Fourth Circuit, several workers were employed by a small subcontractor as framing and drywall installers, and that subcontractor did almost all of its work for a single general contractor. While the subcontractor was responsible for hiring and firing, on a few occasions workers received paychecks directly from the general contractor. The general contractor played a role in determining the workers’ daily and weekly schedules, and the general contractor regularly communicated its site staffing needs to the subcontractor. The workers wore hardhats and vests bearing the general contractor’s name and logo, and were required to sign in on time sheets provided by the general contractor. The general contractor’s foremen continually supervised the workers, and owned nearly all the tools and materials used by the workers.

Applying a previously-applicable legal test to determine whether these facts constituted “joint employment,” the trial court ruled that it did not. On appeal, however, the Fourth Circuit has now established a broader test than was applied by the trial court. Going forward, federal courts in the Fourth Circuit (including the federal courts in Maryland) will consider six factors in determining whether two or more employers are “not completely disassociated” with respect to a worker, for purposes of determining joint employment:

(1) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;

(2) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to – directly or indirectly – hire or fire the worker or modify the terms or conditions of the worker’s employment;

(3) The degree of permanency and duration of the relationship between the putative joint employers;

(4) Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;

(5) Whether the work is performed on premises owned or controlled by one or more of the putative joint employers, independently or in connection with another; and

(6) Whether, formally or as a matter of practice, the putative joint employers jointly determine, share or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll, providing workers’ compensation insurance, paying payroll taxes, or providing the facilities, equipment, tools, or materials necessary to complete the work.

These six factors are not an exhaustive list of all potentially relevant considerations for a court to review. Ultimately, the determination of “joint employment” will be based upon the circumstances of the entire activity. The appeals court expressly held that the fact that there is a legitimate contractor-subcontractor relationship between the putative joint employers is not relevant, nor is liability predicated on any bad faith by the two companies in seeking to avoid compliance with wage and hour laws.

This broader standard is likely to expose many companies to joint liability for payment of minimum wages to the employees of their subcontractors. Companies that retain subcontractors would be well-advised to closely examine particulars of their relationships with employees of subcontractors, to avoid the consequences of being found to be the “joint employer” of employees for purposes of complying with the FLSA.

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Tenants may raise unsafe conditions as defense to eviction

A decision that Maryland’s highest appellate court handed down in late November 2016 clarifies the remedies available to residential tenants when confronted with serious health or safety deficiencies in their rental units.  Maryland residential tenants that suffer under serious conditions or defects are protected by what is commonly known as the rent escrow statute, which obligates landlords to repair and eliminate fire hazards or conditions that constitute a serious and substantial threat to the life, health, or safety of occupants.  The law not only provides a tenant with a cause of action to gain correction of the condition, but also provides an affirmative defense that may be asserted by the tenant. If the tenant can show that the landlord was aware of the defect but failed to correct the defect, the tenant may be entitled to an abatement or reduction of the rent, among other relief.

In its recent decision, the Maryland Court of Appeals reviewed a situation in which a landlord filed an ejectment action against a residential tenant for failure to pay rent, and sought possession of the rental unit. At trial, the tenant attempted to raise, as a defense, claims that there were serious defects in the rental property, including a leak that resulted in a threat to shut off water service to the property. The trial court refused to accept the tenant’s evidence of a serious conduction at the property, holding that such a defense may only be raised in a rent escrow action filed separate from the landlord’s action for ejectment.  The trial court then entered a monetary judgment in favor of the landlord for unpaid rent, and awarded possession of the property to the landlord.  The tenant appealed.

In ruling on the tenant’s appeal, the Court of Appeals held that a residential tenant is not required to bring a separate rent escrow action to raise health and safety deficiencies as a defense.  Instead, residential tenants may raise such a defense in a suit brought by a landlord for unpaid rent and possession.  This establishes a clear avenue for residential tenants to fight against loss of possession when serious safety conditions can be shown through evidence at trial.  The court’s decision may be reviewed here.

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Maryland court clarifies the burden of proof to be applied in defamation lawsuits

People often think that any false statement asserted about a person is defamatory.  In fact, the law of defamation is complicated, and different standards apply to public figures and to private citizens outside of public life.

To successfully make a case of defamation in Maryland, you must establish that the accused defendant made a defamatory statement to a third person, that this statement was false, that the defendant was legally at fault in making the statement, and that the plaintiff suffered harm as a result of the statement’s publication.  A statement is only “defamatory” if it tends to expose a person to public scorn, hatred, contempt, or ridicule, and thereby discourages the community from having a good opinion of, or associating with, the person that was the subject of the statement.  Even if a statement is defamatory, a defendant still may raise what is known as a “qualified” or “conditional” privilege from being held responsible, and thereby be excused for the defamation if the defense is proven.

One form of conditional privilege is the First Amendment privilege.  The U.S. Supreme Court established decades ago that statements pertaining to public figures on matters of public concern are excepted from defamation liability, unless the speaker or writer had actual knowledge that the statement was false, or acted with reckless disregard for the truth.  This is a very high standard of proof, and makes it very difficult for a public figure to win a defamation action.

Private citizens that are not public figures do not have to overcome this First Amendment privilege to prevail in a defamation action, but there are other privileges, arising under the common law, that may derail a defamation action brought against a private person.  There is a “public interest” privilege, for example, permitting persons to communicate to public officials about matters that are within their public responsibility.  There is a privilege to communicate with someone who shares a common interest, or to make statements in defense of oneself, or in the interest of others.  There is a “fair comment” privilege, and a privilege to make a fair and accurate report of public proceedings.  The breadth of these common law privileges are not precisely defined by case law.

On November 22, 2016, the Maryland Court of Appeals issued a decision clarifying one aspect of defamation law:  In cases of private defamation, the plaintiff has the burden of proving the falsity of the allegedly defamatory statement.  If the defendant asserts a common law conditional privilege, the plaintiff also bears the burden of overcoming that privilege.  The Court, in this recent case, has now clarified that the standard of proof that the plaintiff must meet in overcoming a conditional privilege is proof by a preponderance of the evidence.  This decision establishes that a plaintiff in such a case need not meet the higher standard of overcoming a conditional privilege by clear and convincing evidence, which is required in some other states.

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Confusion reigns as new overtime rule is placed in limbo

Maryland employers and workers have reason to be confused about an anticipated expansion of eligibility for overtime pay.  In May, the U.S. Department of Labor issued a regulation that would have doubled (to $47,476) the salary threshold at which many workers have a right to receive time-and-a-half pay, for work weeks that exceed 40 hours.  The rule also would have indexed to inflation future increases in this threshold.  The rule was to have taken effect on December 1, but a few days ago a U.S. District Court judge in Texas issued an injunction barring the rule’s implementation, holding that the Department of Labor may have exceeded its authority in issuing the rule.

The court’s ruling was handed down as Congressional leaders were giving consideration to adjourning earlier than Congress otherwise would have, to preserve the incoming Republican Congress’ ability to legislatively block the new rule in January 2017.  Under the Congressional Review Act, adjourning the current Congress early would stop the clock for legislative review until the new Congress convenes.  Congress might still go forward with this blocking action in January, despite the Texas court’s injunction, since the injunction could prove to be temporary.  In addition, Congressional action would have nation-wide effect, while the impact of court action could eventually become regionally fractured if some federal Circuit Courts continue to block the regulation, while other Circuits uphold the regulation (should Congress fail to act in January).  As long as the ninth seat on the Supreme Court remains vacant, anticipated splits between the Circuit Courts of Appeal on this issue would remain in place, if Congress does not legislatively block the regulation.

Many employers have already informed their employees of pay increases that would take categories of their workers above the regulation’s $47,476 threshold.  This new threshold now no longer is legally binding – as long as the Texas injunction remains in place, and/or if Congress blocks the rule in January – yet employers fear an adverse impact on employee morale should they rescind previously-awarded pay increases.  On the other hand, honoring previously-announced increases that are no longer necessary in order to keep an employee under the applicable salary threshold would mean incurring salary costs that are not legally required.

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Federal court challenges political gerrymandering of state legislative districts.

Gerrymandering is a term used to describe the establishment of legislative or congressional election districts in a way that favors the party that controls the re-districting process.  The term was first coined to mock an early 19th Century governor of Massachusetts, Elbridge Gerry, whom the Boston Gazette claimed in 1812 was responsible for a state senate election district that resembled a salamander.  Crafting election districts for partisan advantage has been part of American political life throughout the country’s history, and Maryland’s current Congressional district map makes clear that the practice is alive and well.  Nationwide, however, partisan line-drawing today overwhelmingly favors Republicans, since that party controlled a greater number of state governments at the time of the most recent decennial census.

Historically, courts have been reluctant to interfere in the drawing of legislative districts, considering it to be an inherently political process that should be left to the legislative branch, without judicial interference.  About fifty years ago, however, the Supreme Court held that apportionment of legislative districts is subject to judicial oversight under the Equal Protection Clause of the U.S. Constitution.  The Court did not hold that political gerrymandering was unconstitutional across the board, but only that the drawing of legislative districts could not disadvantage minorities by having substantially different numbers of voters in different districts.  Since the 1960s, courts have intervened to ensure that votes of citizens are weighted equally.  If an apportionment scheme violates the principle of one-person-one-vote, it must be justified on the basis of other, permissible legislative considerations, under a high standard of judicial scrutiny.

It was not until the 1980s that the Supreme Court addressed a case in which a political party challenged an apportionment scheme based upon a claim of partisan advantage, as opposed to the protection of the principle of one-person-one-vote.  The Court issued plurality opinions in a 1984 case, and again in the early 2000s, which failed to bring clarity to whether, and under what circumstances, courts may overturn an apportionment plan that results in lopsided partisan advantage.  The state of the law regarding political gerrymandering has remained in flux.

In the 2012 elections, Republicans won 48.6% of the two-party vote in the State of Wisconsin, yet because of a gerrymandered apportionment plan they won 61 of the 99 seats in the state legislature.  In a lengthy 2-1 opinion issued on November 21, 2016, a three-judge panel of the U.S. District Court for the Western District of Wisconsin has now held that the legislative apportionment scheme enacted by the Republican legislature in Wisconsin violated both the First Amendment and the Equal Protection Clause of the 14th Amendment, because it’s aim was to deprive Democratic voters of their fair representation in the legislature.  This judicial order is unique because the court accepted use of a mathematical formula to measure the extent of political gerrymandering, which the plaintiffs in the case referred to as the “efficiency gap.”  The formula looks at the number of additional votes cast for the winning party’s candidate, beyond the number of votes cast by the losing side (in other words, the number of “excess” votes cast for the winner, beyond the number needed to win).  It divides this “excess” vote number by the total number of votes cast.  If parties cast the same number of “excess” votes across the state, the resulting number would be zero, which would be the ideal, non-gerrymandered outcome.  By developing a mathematical formula by which the political results of gerrymandering may be measured, this methodology gives opponents a means to persuade the Supreme Court to place constitutional limits on political redistricting.  Specifically, this quantification of the process is thought to be directed toward potentially gaining the vote of Justice Anthony Kennedy, whose past writings on the subject focused on this aspect.

Cases such as this one, heard by three-judge panels of a U.S. District Court, are subject to appeal directly to the Supreme Court, without an intermediate appeal to a Circuit Court of Appeals.  For this reason, this Wisconsin District Court decision could have profound effect on American elections relatively soon, should the Supreme Court take up the case after an anticipated appeal is filed.

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Policies to include in employee handbooks

Maintaining current employee handbooks is a critical protection for Maryland employers. Here is a short article written in October 2012 by my colleague, Cheryl Brown, listing some recent developments in the law that employers should consider adding to their employee handbooks as we move into the new year.

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Maryland Court of Special Appeals upholds verdict in favor of Interactive Digital Solutions

The Maryland Court of Special Appeals, in a published opinion issued on December 20, 2012, upheld a jury verdict that was entered by the Circuit Court for Howard County in June 2011 in favor of our firm’s client, Interactive Digital Solutions.

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