Client Alerts & Publications

Second Circuit Brings Clarity To Scope of “Joint Employer” Theory in Discrimination Cases

Published Date:

04/22/2022

This article was written for the ConsensusDocs newsletter and first appeared here

The “joint employer” doctrine has been used with increasing frequency by the plaintiffs’ bar to broaden the scope of target defendants in discrimination cases beyond those who would be traditionally regarded as the employer. This is true even in the construction industry, which has seen a rise in cases where general contractors (“GC”) or construction managers (“CM”) are being targeted when discrimination is alleged on a construction project, even when the GC or CM is far removed from the underlying events and had no control over the employees in question.

Examples of this phenomenon are where a claim of harassment or discrimination originates in the lower tier ranks of subcontractors, or even where there is a claim involving an independent contractor on a project and a discrimination lawsuit ensues.

Until now, the Courts in the federal circuit which includes New York City (the Second Circuit) have been left to decipher a patchwork of case law to ascertain the scope and extent of joint employer liability in discrimination cases. In a move that is certainly welcomed by contractors, the Second Circuit Court of Appeals in Felder v. United States Tennis Association, et al., 19-1094, recently issued a comprehensive decision which provides a helpful summary of what must be pled and proven to broaden liability under the joint employer theory in discrimination cases. Felder provides a roadmap for risk mitigation by contractors looking to limit such claims in the future or to meet them head on when they do arise.

Background on the Joint Employer Theory

In order to assert a claim under Title VII of the Civil Rights Act, an employee must plead that an employee-employer relationship existed with the target defendant. Wimmer v. Suffolk Cty. Police Dep’t, 176 F.3d 125, 136 (2d Cir. 1999)(“It is inherent in the definition of a racially hostile work environment, however, that the person against whom the hostility is directed must be in an employment relationship with the employer.”).

We often see that employees who bring discrimination claims will try to broaden the net of target defendants to include upstream contractors, such as GCs or CMs, even when the acts of discrimination took place in circumstances far removed from the top tier. A plaintiff might allege, in a summary fashion and without any supporting facts or allegations, that a broad group of defendants were all the employer, that the target CM or GC retained the authority to hire and fire the employee (or harasser), and that the employee was, therefore, “jointly employed” by both the employee’s record employer (i.e., a subcontractor) and the GC or CM. It is often the case that plaintiffs will cobble together such claims by pointing to the language used in training materials, the existence of a workplace security badge with the target company’s logo, Daily Workers Logs, and similar materials, all to blur the line between the corporate entities.

Employees seeking to broaden the net of liability will couple their reference to these relatively standard materials with conclusory allegations that the GC/GM derived economic benefit from their labor, and that the GC or CM controlled the daily work, and also enjoyed the right to fire, reassign and/or reduce their work hours, or could have exercised a reserved right to insist that a high-level harasser be replaced but, instead, sat back and “let it happen.”

Having a sign-in sheet on a job site, issuing identification badges for a subcontractor’s employees, and ensuring that all on-site workers are oriented regarding safety procedures are standard practices in the construction industry and are actions taken to ensure compliance with regulatory and safety requirements.  Also relatively standard are provisions which give the GC or CM a right to review the selection of key supervisory personnel on a project.  These practices are, however, sometimes weaponized against a GC or CM.

Prior to the recent opinion of the Second Circuit articulating a formal standard for Title VII claims, courts would look at several different standards to determine the joint employer relationship. For instance, under a “formal control” test, the court has historically examined whether the employer “(1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.” Carter v. Dutchess Cmty. Coll., 735 F.2d 8, 13 (2d Cir. 1984) (quoting Bonnette v. Cal. Health and Welfare Agency, 704 F.2d 1465, 1470 (9th Cir. 1983)).

Meanwhile, under a single integrated enterprise theory, the court historically determined whether there is “(1) interrelation of operations, (2) centralized control of labor relations, (3) common management, and (4) common ownership or financial control.” Juarez v. 449 Rest., Inc., 29 F. Supp. 3d 363, 367 (S.D.N.Y. 2014); see also Hiralall v. Sentosacare, LLC, No. 13 CIV. 4437 (GBD), 2016 WL 1126530, at *5–7 (S.D.N.Y. Mar. 18, 2016)(Daniels, U.S.D.J.)(dismissing joint employer claims); Hugee v. SJC Grp., Inc., No. 13 CIV. 0423 GBD, 2013 WL 4399226, at *10 (S.D.N.Y. Aug. 14, 2013)(Daniels, U.S.D.J.)(dismissing joint employer claims).

Felder Clarifies the Law

The recent Felder case involved discrimination claims by a security guard who worked for a contractor that provided seasonal security for the United States Tennis Association (“USTA”). In 2012, Felder alleged discrimination in the doling out of assignments for the U.S. Open, and his claims were settled. Four years later he began working for another security company, AJ Security, which also provided security for USTA events. Felder was assigned to work the U.S. Open for AJ Security in 2016, but he was allegedly denied the opportunity because the USTA rejected his credentials due to his past complaints about racial discrimination. He sued the USTA for race discrimination and retaliation, including claims that USTA was his joint employer.

The District Court dismissed his claims, and the Second Circuit affirmed the dismissal of most of his claims. However, the appeals court has decided to permit him one last chance to replead his retaliation claim using a joint employer theory and has now sent it back to the District Court to allow this to occur. In reaching its decision, the Court recognized that “[a]lthough this Court has not previously identified a specific test for determining what renders an entity a ‘joint employer in a Title VII case, today we join our sister Circuits in concluding that non-exhaustive factors drawn from the common law of agency, including control over an employee’s hiring, firing, training, promotion, discipline, supervision, and handling of records, insurance, and payroll, are relevant to this inquiry.”

The Court held that a plaintiff who claims discrimination in not being hired must plead that if hired, he would have been more like a traditional employee of the putative employer than an independent contractor. The plaintiff must plausibly allege that the alleged employer would have exerted control over the terms and conditions of the anticipated employment by, for example, “training, supervising, and disciplining [him].”

The Court noted that the plaintiff’s complaint did not allege that USTA exerted any control over AJ Security’s hiring process or that it would be involved in training him, supervising him, issuing his paychecks, or providing him a uniform. The Court recognized that he had alleged only alleged that USTA refused to give him credentials to work the U.S. Open and that this was simply not enough to render the USTA a joint employer. As noted above, because the plaintiff’s attorneys persuaded the Court that they could cure the deficiencies in the complaint insofar as the employee was suing for retaliation, the Court was willing to give him another chance.

Application of Felder to Claims of Discrimination Against Construction Firms

For employers seeking to avoid liability as a “constructive employer,” the key takeaway from the Court’s decision is to carefully limit control over the workforce of companies with whom you may contract. For instance, in the construction industry, it is imperative to limit the scope of any training, supervision, or discipline of another employer’s workforce; to avoid paying directly other companies’ employees; and to carefully document any interactions in this regard as well as the relative responsibilities of each party in your governing documents.  Any reservation of a right to trump the selection of key project employees should be carefully tied to the need of the GC and/or CM to ensure the work is performed properly.

While a litigant will still try to argue that a GC’s or CM’s role in providing site safety on the underlying project is relevant for this analysis, this is not sufficient to ascribe legal liability to a CM or GC for any conditions caused by a lower tier trade that was retained by the owner or GC. For instance, New York City Building Code § 3321.1 requires the permit holder at a building site to ensure that site safety training has been completed by construction workers on the job site pursuant to the requirements for the various compliance dates. This includes a requirement that, before the second site safety training (“SST”) compliance date, the permit holder “ensur[e] that each construction or demolition worker employed or otherwise engaged at such site by the permit holder or performing subcontracted work for or on behalf of such permit holder has successfully completed (i) an OSHA 10-hour class, (ii) an OSHA 30-hour class or (iii) a 100-hour training program.” (emphasis added). The permit holder must also ensure that such workers have SST cards. Section 3321.2(3) of the Building Code also requires that permit holders “maintain[] at such site a daily log, in a form and manner established by the department, that identifies each such worker and that includes, for each such worker, a copy of the SST card, SST supervisor card, limited SST card, temporary SST card or proof of compliance with Item 1 of Section 3321.1, as applicable.” This log must be provided to the Department of Buildings upon request. NYC Building Code § 3321.2(4).

If a court were to allow the imposition of joint employer liability based on a GC’s or CM’s role in complying with the building code or as part of its function as a CM or GC, this would be contrary to the purpose of these codes, and unfair. It is well-established that “[e]xercising quality control by having strict standards and monitoring compliance with those standards does not constitute supervising and controlling employees’ work conditions . . . This is especially true where the quality control’s purpose is to ensure compliance with the law or protect clients’ safety.” Godlewska v. HDA, 916 F. Supp. 2d 246, 259–60 (E.D.N.Y. 2013), aff’d sub nom. Godlewska v. Hum. Dev. Ass’n, Inc., 561 F. App’x 108 (2d Cir. 2014); see also Vasto v. Credico (USA) LLC, 2017 WL 4877424, at *9‑10 (S.D.N.Y. Oct. 27, 2017), aff’d, 767 F. App’x 54 (2d Cir. 2019)(holding that having the “right” to supervise does not create a joint employer relationship, nor does quality control to ensure productivity and compliance equal control or establish a joint employer relationship); Jean-Louis v. Metro. Cable Commc’ns, Inc., 838 F. Supp. 2d 111, 127 (S.D.N.Y. 2011)(“At most, the evidence shows that Time Warner provided the results of quality control assessments to Metro, discussed them on a general level in monthly meetings, and occasionally inquired about what Metro planned to do about the worst performing technicians. That evidence cannot justify an inference of joint employment.”).

Further, the New York Court of Appeals has observed that, with respect to a “joint-employer” relationship, the Courts in New York have “recognized that in the typical general contractor/subcontractor context, a general contractor is not an employer of its subcontractors’ employees.” Ovadia v. Off. of Indus. Bd. of Appeals, 19 N.Y.3d 138, 143 (2012). The Court went on to state that:

“[a]s a practical matter, general contractors in the construction industry do not hire or supervise the workers employed by their subcontractors; they do not usually maintain the employment records for each worker or track the individual workers’ schedules or rates of pay. The primary objective of a general contractor is to keep the project on schedule and to coordinate the work among subcontractors to avoid costly delays in the completion of the project. Thus, general contractors frequently interact with the principals and supervisors of the subcontractors and generally have no direct control or functional supervision over the employees performing work for the subcontractors.”

Id.

The GC’s or CM’s unique relationship with subcontractors is recognized in the case law, and it is well established that the exercise of general supervision over a subcontractor’s work does not make the GC or CM liable for the subcontractor’s actions. See N.L.R.B. v. Denver Bldg. & Const. Trades Council, 341 U.S. 675, 689–90 (1951)(holding that “the fact that the contractor and subcontractor were engaged on some construction project, and that the contractor had some supervision over the subcontractor’s work, did not eliminate the status of each as an independent contractor or make the employees of one the employees of the other”). The Felder decision provides additional support for a GC’s or CM’s efforts to extract itself from a discrimination claim where it has been unfairly named as a defendant.

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