Subcontractors Can Be Jointly Liable for Contractors’ Labor Law Violations

Otter: “He can’t do that to our pledges.”

Boon: “Only we can do that to our pledges.”

–Animal House, 1978

Subcontractors are like pledges in a way. They have to abide by the rules that apply to the primary contractor. If they fail to do so, they are responsible. Fairness isn’t really the issue.

A recent case shows how subcontractors can be held responsible when a primary contractor improperly fails to bargain with a union. In 2014, a contractor won a bid to take over a Job Corps Youth Training Center. The Center had been a union facility, and the contract was set to expire right around the same time the contractor took over operations. The contractor brought in a subcontractor, MJLM, to handle wellness, recreation,

The contractor initiated a new hire process, and some union employees were rehired while others were not. The contractor imposed new terms and conditions of employment, disregarding the progressive discipline and other procedures that had been negotiated into the prior union contract.

The union filed an unfair labor practice charge with the NLRB, alleging that the contractor engaged in various unfair labor practices, including making unilateral changes to terms of employment without bargaining and improperly discharging various union employees. The Board’s General Counsel amended the complaint to allege that MJLM was equally responsible for any violations as a joint employer.

MJLM fought back, claiming that it was along for the ride, but the NLRB — and ultimately the Fifth Circuit Court of Appeals — found otherwise. The Board and the Court found that MJLM was a joint employer because it was involved in the hiring process, had influence over wages, assisted in setting holiday schedules, and helped to operate the center.

MJLM, as a subcontractor, was found to be a joint employer and therefore equally responsible for any unfair labor practices committed by the contractor.

When I read the case, I assumed the case was decided under the controversial new Browning-Ferris standard that allows for a finding of joint employment if there was merely indirect control. I was wrong. The Board (and Court) ruled that even under the old standard requiring direct exercise of control, the subcontractor was a joint employer.

Businesses should remember that joint employment can result in liability for violations by others. A subcontractor can be held responsible for unfair labor practices by a contractor. In this case, both the contractor and subcontractor were required to recognize the union, undo their unilaterally imposed practices, commence bargaining, and reinstate and make whole the employees who were not rehired.

MJLM was just as responsible as the contractor. To paraphrase the Court’s decision, with apologies to Dean Wormer, “The time has come for someone to put his foot down, and that foot is me.”


© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Tip for Master Services Agreements: Protect Your Business Opportunities

Master servbice agreement protect business opportunities non-circumvention clause staffing agency agreement IMG_1095If you google “Quotes about Opportunity,” you’ll find 1273 quotes on Goodreads.com. Everyone’s interested in opportunities. But when it comes to business relationships, don’t let others take yours.

When servicing a customer, businesses often call upon use subcontractors for help. That can be a win-win, so long as the subcontractor does not try to poach the relationship once that deal is done.

Consider protecting the opportunities you present to subcontractors with a non-circumvention clause. The concept here is that when your business has introduced a subcontractor to a customer to work on a project, the subcontractor should not be allowed to circumvent your business and provide the same service directly to that customer, effectively cutting you out.

Non-circumvention clauses should be drafted carefully and narrowly. The prohibition should be limited in scope to (a) services your business can provide directly and (b) services that the subcontracor provided through your arrangement, as a result of your introduction. Don’t overreach. The prohibition should be limited in time, as well.

Protect the opportunities you create. Or the 1274th quote might be about opportunities lost. (Goodreads.com also has 903 quotes about regret.)

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Michael Jackson Says: Be Sure Your Subcontractor Agreements Require Adequate Insurance

Insuracne subcointractor agreement independent contractor clauses agreements IMG_1096The Michael Jackson song, “Don’t Stop Til You Get Enough” has all kinds of lyrics I can’t understand. No matter how many times I listen to that song, most of it sounds unclear to me, like nonsense syllables.

The one part of the song that is clear, though, is the title. That one phrase is repeated over and over. Leaving aside (for now) the unintelligible parts of the song, the King of Pop unwittingly provided a good lesson on insurance clauses for subcontractor agreements.

(Note to readers: I looked up the real lyrics, and they have nothing to do with subcontractor agreements or insurance clauses, but they might as well since I still can’t understand them.)

Subcontractor agreements typically include an indemnification requirement and an insurance requirement. The subcontractor is required to indemnify your business against certain types of claims and must require sufficient insurance to cover those claims.

But how much insurance is enough?

That varies, of course, depending on the scope of the engagement and the responsibilities undertaken by the subcontractor. But don’t leave the amount and types of coverage to the subcontractor’s discretion.

Types of required insurance often include general commercial liability, automobile, and workers compensation coverage. Minimum amounts, though, should be specified. It does you no good to have a contractual agreement for indemnification if the subcontractor lacks the financial backing to pay up. You may end up with a bankrupt contractor and a worthless indemnification agreement.

I often see $1 million or $2 million per occurrence for general commercial liability. Workers compensation clauses often refer to “statutory limits,” but some states, like Texas, do not have statutory coverage requirements, so the term “statutory limits” in Texas might be meaningless.

Provide some specific requirements for coverage amounts and don’t stop til you get enough.

Now about the song, did you know these are actual lyrics?

  • Keep on with the force, don’t stop.
  • I was wondering, you know, if you could keep on, because the force it’s got a lot of power.
  • I’m melting (I’m melting) like hot candle wax.

Sounds like a tribute to the Star Wars exhibit at Madame Tussaud’s.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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