Why You May Be Liable for More Employees Than You Think

By Michael Santocki & Adam Peterson from

If you were to ask the leadership team at most organizations for the number of employees they have on staff, it will likely not take long for them to produce the latest count from HR or, at least, provide a good estimate. However, they may be surprised to discover that from a liability standpoint, their organization could have many more employees than reflected in their current payroll.

Take for example the recent $4.2 million dollar judgement against the Cheesecake Factory and a janitorial contractor they hired. Cheesecake Factory was found jointly liable for wage theft from the janitorial contractor’s employees despite not having any of them on their payroll. Under the standards of joint-employer liability, your organization can potentially be found responsible for the employees of contractors or third parties you work with.

In simple terms, a company becomes a joint-employer when it shares responsibility of an individual with another company. The origin of joint-employer law stems from material shifts in the employee-employer landscape. Over the past several decades, many employers have outsourced job functions to independent contractors and other third parties. The general sentiment is that this negatively impacted the American worker and, as a result, a more assertive interpretation of the law was developed, particularly during the Obama administration.

Under this new interpretation of the law, previously defining characteristics of the employee-employer relationship, such as whether or not an employee is on company payroll, are no longer the sole criteria for determining liability.

So how does your company evaluate its joint-employer standing? Unfortunately, there is no simple answer. The current standard, known as the “Browning-Ferris” standard, is broad in nature, ruling that any business that has ‘direct’ or ‘indirect’ control over another company’s employee is a joint-employer.

While the employees that you have direct control over are the first to come to mind (the individuals on your payroll and letterhead or employees provided to you via contract with a Professional Employer Organization or staffing firm), you may not have considered third-party individuals for whom you may indirectly control the terms and conditions of employment.

For example, does your company outsource janitorial services to a third-party provider? On the surface, it is easy to assume that you have no liability pertaining to the janitorial staff – they are paid by the janitorial company, placed by the janitorial company, and even wear the janitorial company’s uniform. However, the Browning-Ferris Standard may state otherwise as the janitorial staff may be indirectly under the control of your company. Your company may dictate their working conditions due to the general cleanliness of your staff. Your company may also indirectly control their hours, as internal employees may disrupt the janitorial staff’s schedule by asking them to hold off on cleaning a certain conference room or office due to a pressing meeting, causing the janitors to stay later than intended.

The exact scenario listed above resulted in the judgement against Cheesecake Factory Restaurants Inc. and Americlean Janitorial Services Corp., who provided janitorial staff to five Cheesecake Factories in California. The allegations against the companies asserted that the janitorial staff worked without the proper breaks and were not compensated for up to 10 hours of overtime a week. Despite not being paid employees of Cheesecake Factory, the janitorial staff was not allowed to leave until Cheesecake Factory managers had approved their work. As such, the courts asserted that Cheesecake Factory met the control standard, and this caused Cheesecake Factory to be jointly responsible with Americlean for the multi-million dollar ruling.

While an outsourced janitorial firm is an easy target, joint-employer laws can affect any part of your business that may be outsourced, including IT, parking attendants, handymen, etc. However, there might be changes looming as the Trump administration may soon move away from the Browning-Ferris standard; in fact, the Trump-era National Labor Relations Board has already attempted its dismantlement once in late 2017. Additionally, the NLRB is expected to rule this summer on a formal joint-employer definition, leading to much speculation of the ‘indirect control’ provision’s future.

Regardless of the changes that may come, every company should be wary of their potential status as a joint-employer. You may have a much larger employee count exposure than you think.

Michael Santocki & Adam Peterson
Michael Santocki & Adam Peterson

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