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Marketing company not joint employer of subcontractor’s salesforce

Had no power to ‘control’ subcontractor’s workers

A business that provides sales and marketing services to energy and wireless companies was not the “joint employer” of door-to-door salespeople hired by one of its subcontractors, a judge in Massachusetts’ Business Litigation session has decided.

Defendant Credico (USA) LLC enlisted defendant DFW Consultants to conduct door-to-door sales on behalf of Credico clients.

A group of people DFW hired to conduct the sales brought a purported class action against DFW alleging the subcontractor misclassified them as independent contractors and failed to pay minimum wage and overtime. The plaintiff employees also named Credico under a joint employer theory.

Clients will seek appellate review

Clients will seek appellate review

In advancing their claims against Credico, the plaintiffs argued that the “ABC” test to determine whether an employee has been misclassified should also be used to determine whether a company is a joint employer.

Under that test, a company denying joint employer status must prove the worker is free of its control; the individual’s work falls outside the alleged joint employer’s usual course of business; and the individual is customarily engaged in an independently established occupation of the same type as the service being performed.

But Judge Kenneth W. Salinger ruled that the individual must show that the alleged joint employer had the right to control his or her work.

“[T]he record demonstrates that Credico had no power to hire or fire DFW’s workers, did not supervise or control their work schedules or other conditions of employment, did not and had no power to establish the rate or method for paying DFW’s workers, and did not maintain employment records for those workers,” Salinger wrote in granting summary judgment to Credico. “Nor have Plaintiffs mustered any other evidence that Credico had the right to control Plaintiffs’ work for DFW.”

With respect to DFW, Salinger found that the subcontractor did, in fact, misclassify its workers as independent contractors, and that while the plaintiffs could proceed against DFW on their minimum-wage claims, the outside sales exemption foreclosed their overtime claims.

The 16-page decision is Jinks, et al. v. Credico (USA) LLC, et al.

‘Massive implications’

Credico’s attorney, Barry J. Miller of Boston, said the rejection of the ABC test in the joint employer context has “massive implications.”

Had the ABC test been adopted in this context, Miller said, not only could a company like Credico, which he described as simply a broker of services, potentially be deemed a joint employer, but Credico’s clients could be labeled joint employers as well.

“This decision gives employers some certainty about whom they owe wages to,” Miller said. “Limiting [liability] to people within your line of sight and control is important for someone running a business to rely upon so you don’t have that massive pot of ‘gotcha’ liability — which at the end of the day is what many wage-and-hour suits are about.”

miller“Limiting [liability] to people within your line of sight and control is important for someone running a business to rely upon so you don’t have that massive pot of ‘gotcha’ liability — which at the end of the day is what many wage-and-hour suits are about.”

— Barry J. Miller, defense counsel

Plaintiffs’ counsel Harold Lichten of Boston said his clients plan to seek direct appellate review by the Supreme Judicial Court. The SJC was set to resolve the issue in a different case in January, but that case settled two days before argument.

Meanwhile, Lichten said, should Salinger’s interpretation hold, employees will have no redress against companies like Credico, which he described as insulating itself from wage-and-hour laws by working through a host of intermediaries, like DFW, “that don’t have two dimes to rub together.”

“It’s essentially a pyramid scheme, because Credico is running everything,” Lichten said.

Matthew J. Fogelman, an employment lawyer in Newton Center, said the matter in Jinks is exactly the type of issue that should be decided by the SJC.

“While I see the arguments on each side, as a plaintiffs’ attorney I have my own leanings. I see some real downsides to having the ABC test not apply, especially if a company like Credico is really calling the shots,” he said. “If they’re orchestrating the entire system and they’re conducting this whole orchestra, why should they be insulated from liability?”

David Himelfarb of Boston called Jinks a “thoughtful and well-reasoned decision” that provides helpful clarity not only on the joint employer issue, but on the scope of the outside sales exemptions under the Wage Act.

Specifically, Himelfarb referred to the plaintiffs being able to proceed on their wage claims against DFW, as the outside sales exemption to the minimum-wage law does not apply to employees who must report daily to the employer, and the plaintiffs alleged they were required to do so. However, Salinger ruled they could still be ineligible for overtime because the outside sales exemption in that provision says nothing about making daily reports.

Boston employment attorney Christopher B. Kaczmarek also welcomed the ruling in Jinks.

“Although these issues come up a lot, there wasn’t a lot of case law on them,” Kaczmarek said. “Having Judge Salinger sitting in the BLS issuing a decision like this really helps provide some clarity on both sides of the issue.”

Door to door

DFW subcontracted with Credico to provide door-to-door sales services for several of Credico’s clients.

In the 2015 “services agreement” between the two companies, Credico agreed to pay DFW pursuant to a separate fee schedule for each Credico client. It also required DFW to observe and comply with all requirements of each Credico client.

The agreement also stated that Credico had no right to control the work performed by DFW employees or contractors, apparently giving DFW sole discretion over hiring, firing, wages and hours of its salespeople, and where, when and how they did their work.

While Credico apparently had procedures in place to ensure that DFW and similar subcontractors complied with its clients’ requirements for sales reps, such as background checks and drug testing, it allegedly maintained no employment, payroll or tax records for DFW sales staff.

The plaintiffs, all hired by DFW to perform sales work for Credico clients, were paid by DFW on commission. DFW classified some of the plaintiffs as independent contractors.

All the plaintiffs’ sales work was performed in the field, though they allegedly were required to attend meetings at DFW at the start and end of the work day.

In August 2017, the plaintiffs filed a class action in Superior Court alleging misclassification and minimum-wage and overtime violations on the part of DFW as their employer and Credico as a joint employer.

The defendants moved for summary judgment.

Right to control?

Salinger found that Credico was not, in fact, a joint employer and could not be held liable for any of the alleged violations.

In doing so, he declined to apply the ABC test, found in G.L.c. 149, §148B, the state’s independent contractor law.

“The ABC test is only useful ‘to resolve whether a worker has been properly classified as an independent contractor or employee,’” Salinger wrote, quoting Henderson v. Equilon Enterprises, LLC, a 2019 decision from the California Court of Appeals. “[I]t ‘does not fit analytically with and was not intended to apply to claims of joint employer liability.’”

Instead, Salinger applied the common-law “right to control” test to determine an employment relationship, noting that Credico had no power to hire or fire any of the plaintiffs, to supervise or control their work schedules, or determine their pay.

“Since Credico is not the plaintiffs’ joint employer, it cannot be liable for misclassifying any of them as independent contractors or failing to pay them minimum wage and overtime payments required by Massachusetts law,” Salinger concluded, granting summary judgment to Credico.

He went on, however, to deny summary judgment to DFW on the plaintiffs’ minimum wage claims, holding that the “outside sales exemption” to the minimum wage law, G.L.c. 151, §2, did not apply to salespeople who had to report to the employer daily, as the plaintiffs allegedly did here.

But the judge noted that the outside sales exemption in the overtime statute, G.L.c. 151, §1A, had no such limitation and thus granted summary judgment on the OT claims.

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