Can You Be at Fault if Your Subcontractor Performs Shoddy Installation Work? Ask a North Dakotan.

Interstate 94 in North Dakota near Gladstone

Interstate 94 in North Dakota, near Gladstone, demonstrating why ND is the least visited of the 50 states. Photo from Wikipedia.

According to the official tourism website for North Dakota, the Peace Garden State “leads the nation in production of spring wheat, durum wheat, dry edible peas, dry edible beans, honey, flaxseed and canola.” North Dakota is also the #1 producer of honey in the U.S., a fact you can learn more about by clicking on this official North Dakota State Bee Map, on which you can locate the most active apriaries, which is a place where bees are kept and which is a word that I did not know was a word, so you see, we have all learned something today.

In addition to giving us more dry edible beans than any one of us could safely consume, North Dakota also gives us a recent case that reminds us of an important principle: If your company contracts to perform a service and subcontracts the service, your company is probably still liable under contract law to ensure that the service is properly performed.

In Bakke v. Magi-Touch Carpet, the Supreme Court of North Dakota examined a case where Magi-Touch subcontracted the installation of a shower door, which later “imploded,” according to the narrative in the opinion. I envision something less dramatic than the implosion of the Georgia Dome (cool video), but nonetheless if it were my shower door, I’d be unhappy with that sort of installation job.

The subcontractor apparently stunk it up (too many dry edible beans?), and the homeowner sued Magi-Touch for negligence, fraud, breach of contract, and bunch of other stuff that its creative attorney could come up with. The Court ruled that this was a basic breach of contract case, not a tort case and not a negligence case. Magi-Touch had an obligation to ensure the proper installation of the door, since that what it had contracted to do. Retaining a subcontractor did not relieve Magi-Touch of its contractual obligation to install the door, and Magi-Touch could be held liable under a breach of contract theory for failing to complete the installation in a workmanlike manner.

On the bright side for Magi-Touch, it could not be held liable for negligence or other tort claims. Any damages were limited to the type of damages available for a breach of contract — namely, what it could take to repair and properly install the door.

While this may seem like an obscure shower door case from a state you’ll never visit, the principles of law discussed in the case apply fairly universally. The N.D. Supreme Court decided this case based on common law principles, which generally apply no matter where in the U.S. you are located.

The important thing to remember is that subcontracting a service that your company has contractually agreed to perform does not relieve your company of the contractual obligation to perform the service. Subcontract at your own risk, and take steps to ensure the work is properly performed before paying the subcontractor.

Be sure your contracts are clear as to whose obligations are whose — both in your contracts with customers and in your contracts with subcontractors.

And if you ever find yourself planning a trip to North Dakota, aim for September in Grand Forks and prepare to witness greatness. According to the N.D. Tourism site, “The world’s largest french fry feed is held every year in Grand Forks, during Potato Bowl USA. A new record was set on September 10, 2015, when 5,220 pounds of french fries were served.” Sounds healthy but delicious.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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What is the Test for Joint Employment? It Depends.

Joint employment together

There are lots of ways to be together. Some are good, some less good.

Let’s compare:

  • By the end of the movie Grease, the graduates of Rydell High have decided that they “go together like rama lama lama ka dinga da dinga dong.” That, I think, is supposed to mean good.
  • In The Fox and Hound 2, a direct-to-video DisneyToon generally rated as “not terrible,” our four-legged heroes sing that they “go together like wet dog and smelly peanut butter jelly fleas on my belly.” That sounds less good.

In employment law, being together can be good or bad, depending on your perspective.

When a company retains someone else’s employees to perform work, it sometimes becomes necessary to decide whether the first company is a “joint employer” of the second company’s employees. Being a joint employer is not illegal, but it means that if the primary employer violates employment laws, a “joint employer” is liable too — even if it wasn’t primarily responisble for the unlawful act.

The test for joint employment varies depending on which law was violated and depending on the state you’re in. (Here’s a map that illustrates the madness.) For example…

In this post we discussed how you determine if someone is a joint employer under federal wage and hour law (the Fair Labor Standards Act) (FLSA).

In these posts, we discussed how you currently determine whether someone is a joint employer under federal labor law (the National Labor Relations Act) (NLRA). In this post, we discuss how and when that test is likely to change.

In today’s post, we’ll examine how you determine whether someone is a joint employer under federal employment discrimination and breach of contract law. For these laws, the test for joint employment looks to the common law of agency.

A recent decision by the federal Court of Appeals for the 11th Circuit reminds us that different tests apply to different laws. Applying the joint employment test for FLSA claims, the trial court had ruled that a citrus grower was the joint employer of migrant workers after the primary employer who hired them did not properly pay them.  (The farm-labor contractor who hired them allegedly demanded kickbacks from the migrant workers’ wages under threat of deportation. Today’s Tip: Don’t do that.)

The migrant workers had another claim too. They alleged breach of contract under federal law (the contract was part of the federal visa process), and it tried to sue both the farm-labor contractor who was demanding the kickbacks and the citrus grower at whose fields they picked delicious fruit.

For the breach of contract claim, the Court of Appeals ruled that the proper way to determine whether someone is a joint employer is to use a Right to Control Test.

There are different versions of Right to Control Tests, but they all try to determine whether a hiring party retains the right to control how the work is performed. If the answer is “yes they do,” then the hiring party is a joint employer under that law. If the answer is “no they don’t, they care about the achieving the result but not how the work is performed,” then the hiring party is not a joint employer.

This Court of Appeals decided that there are 7 factors that should be used to determine whether someone is a joint employer under federal breach of contract law. (The same test would generally apply to federal employment discrimination claims.) State laws may differ. Here are the 7 factors that this court used to determine whether someone is a joint employer under federal breach of contract law:

1. Does the alleged joint employer have the right to control how the work is performed?
2. Does the alleged joint employer provides the tools?
3. Is the work being performed at the worksite of the alleged joint employer?
4. Does the alleged joint employer provide employee benefits?
5. Does the alleged joint employer have the right to assign additional work?
6. Does the alleged joint employer have discretion over when and how long the workers work?
7. Is the work being performed a part of the alleged joint employer’s regular business?

In this case, applying the 7 factors, the Court of Appeals ruled that the citrus grower did not exert much control and therefore was not a joint employer for the breach of contract claim — even though it was a joint employer for the FLSA claim. (The FLSA uses an Economic Realities Test, not a Right to Control Test, to determine whether someone is an employer.) That’s right — different tests, different results.

The citrus grower did not want to be a joint employer because it was not part of the alleged kickback scheme and did not want to be held jointly responsible. Nonetheless, it was found to be a joint employer under the FLSA but not under the breach of contract claim. Confusing stuff.

When making music, being together seems so much simpler, although much more prone to nonsense words. Just ask the Turtles, who in 1969 were “so happy together Ba-ba-ba-ba ba-ba-ba-ba ba-ba-ba ba-ba-ba-ba.”

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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