Opinion ID: 784757
Heading Depth: 4
Heading Rank: 1

Heading: Factors to Be Applied

Text: 44 On remand, the District Court must determine whether the Liberty Defendants should be deemed to have been the plaintiffs' joint employer. This determination is to be based on the circumstances of the whole activity, Rutherford, 331 U.S. at 730, 67 S.Ct. 1473, viewed in light of economic reality, Goldberg, 366 U.S. at 33, 81 S.Ct. 933. We discuss below factors, drawn from Rutherford, which we think the court will find illuminating in these circumstances. The court is also free to consider any other factors it deems relevant to its assessment of the economic realities. 45 The factors we find pertinent in these circumstances, listed in no particular order, are (1) whether Liberty's premises and equipment were used for the plaintiffs' work; (2) whether the Contractor Corporations had a business that could or did shift as a unit from one putative joint employer to another; (3) the extent to which plaintiffs performed a discrete line-job that was integral to Liberty's process of production; (4) whether responsibility under the contracts could pass from one subcontractor to another without material changes; (5) the degree to which the Liberty Defendants or their agents supervised plaintiffs' work; and (6) whether plaintiffs worked exclusively or predominantly for the Liberty Defendants. See Rutherford, 331 U.S. at 724-25, 730, 67 S.Ct. 1473; see also Lopez, 14 F.Supp.2d at 416-18 (summarizing the factors considered in Rutherford ). 46 These particular factors are relevant because, when they weigh in plaintiffs' favor, they indicate that an entity has functional control over workers even in the absence of the formal control measured by the Carter factors. Thus, in Rutherford, by looking beyond the boning supervisor's formal prerogatives, the Supreme Court determined, based principally on the factors listed above, that the slaughterhouse dictated the terms and conditions of the boners' employment. First, although it did not literally pay the workers, the slaughterhouse de facto set the workers' wages, because the boners did no meat boning for any other firm and shared equally in the funds paid to the boning supervisor. See Rutherford, 331 U.S. at 726, 730, 67 S.Ct. 1473. The slaughterhouse also controlled employee work schedules, both because the boners' hours were dependent on the number of cattle slaughtered, and also because the slaughterhouse manager was constantly after the boners about their work. See Rutherford, 331 U.S. at 726, 67 S.Ct. 1473. Finally, the slaughterhouse effectively controlled the [boners'] ... conditions of employment, Carter, 735 F.2d at 12, because the boners worked for the slaughterhouse as an in-house boning unit on the slaughterhouse's premises, see id. at 730, 67 S.Ct. 1473. In sum, the relationship between the slaughterhouse and the successive boning supervisors who managed the boners had no substantial, independent economic purpose; instead, it was most likely a subterfuge meant to evade the FLSA or other labor laws. 47 The first two factors derived from Rutherford require minimal discussion. The first factor — namely, whether a putative joint employer's premises and equipment are used by its putative joint employees — is relevant because the shared use of premises and equipment may support the inference that a putative joint employer has functional control over the plaintiffs' work. Similarly, the second factor — namely, whether the putative joint employees are part of a business organization that shifts as a unit from one putative joint employer to another — is relevant because a subcontractor that seeks business from a variety of contractors is less likely to be part of a subterfuge arrangement than a subcontractor that serves a single client. Although neither shared premises nor the absence of a broad client base is anything close to a perfect proxy for joint employment (because they are both perfectly consistent with a legitimate subcontracting relationship), the factfinder can use these readily verifiable facts as a starting point in uncovering the economic realities of a business relationship. 48 The other factors we have pointed out are less straightforward. Rutherford considered the extent to which plaintiffs performed a line-job that is integral to the putative joint employer's process of production. Interpreted broadly, this factor could be said to be implicated in every subcontracting relationship, because all subcontractors perform a function that a general contractor deems integral to a product or a service. However, we do not interpret the factor quite so broadly. The factor is derived from the Rutherford Court's statement that the boners at the slaughterhouse should be considered joint employees because, inter alia, [they] did a specialty job on the production line. Rutherford, 331 U.S. at 730, 67 S.Ct. 1473. Based on this statement in Rutherford, 9 along with similar language in decisions interpreting Rutherford, see, e.g., Antenor, 88 F.3d at 937 (noting that farmworkers were analogous to employees working at a particular position on a larger production line (citing Rutherford, 331 U.S. at 729-30, 67 S.Ct. 1473)), we construe Rutherford to mean that work on a production line occupies a special status under the FLSA, at least when it lies on the usual path of an employee, id. at 729, 67 S.Ct. 1473. 49 Rutherford, however, offers no firm guidance as to how to distinguish work that in its essence, follows the usual path of an employee, id., from work that can be outsourced without attracting increased scrutiny under the FLSA. In our view, there is no bright-line distinction between these two categories of work. On one end of the spectrum lies the type of work performed by the boners in Rutherford — i.e., piecework on a producer's premises that requires minimal training or equipment, and which constitutes an essential step in the producer's integrated manufacturing process. On the other end of the spectrum lies work that is not part of an integrated production unit, that is not performed on a predictable schedule, and that requires specialized skills or expensive technology. In classifying business relationships that fall in between these two poles, we are mindful of the substantial and valuable place that outsourcing, along with the subcontracting relationships that follow from outsourcing, have come to occupy in the American economy. See, e.g., The Outing of Outsourcing, The Economist, Nov. 25, 1995, at 57, 57 (noting that outsourcing is part and parcel of the way American companies of all sizes do business). We are also mindful that manufacturers, and especially manufacturers of relatively sophisticated products that require multiple components, may choose to outsource the production of some of those components in order to increase efficiency. See, e.g., Ravi Venkatesan, Strategic Sourcing: To Make or Not to Make, Harv. Bus. Rev., Nov./Dec.1992, at 98 (arguing that manufacturers should outsource the production of components to maximize efficiency). Accordingly, we resist the temptation to say that any work on a so-called production line — no matter what product is being manufactured — should attract heightened scrutiny. Instead, in determining the weight and degree of factor (3), we believe that both industry custom and historical practice should be consulted. Industry custom may be relevant because, insofar as the practice of using subcontractors to complete a particular task is widespread, it is unlikely to be a mere subterfuge to avoid complying with labor laws. At the same time, historical practice may also be relevant, because, if plaintiffs can prove that, as a historical matter, a contracting device has developed in response to and as a means to avoid applicable labor laws, the prevalence of that device may, in particular circumstances, be attributable to widespread evasion of labor laws. Ultimately, this factor, like the other factors derived from Rutherford, is not independently determinative of a defendant's status, because the mere fact that a manufacturing job is not typically outsourced does not necessarily mean that there is no substantial economic reason to outsource it in a particular case. However, as Rutherford indicates, the type of work performed by plaintiffs can bear on the overall determination as to whether a defendant may be held liable for an FLSA violation. 10 50 The fourth factor the Court considered in Rutherford is whether responsibility under the contracts could pass from one subcontractor to another without material changes. That factor is derived from the Rutherford Court's observation that [t]he responsibility under the boning contracts without material changes passed from one boner to another. Rutherford, 331 U.S. at 730, 67 S.Ct. 1473. In the quoted passage, the Supreme Court was referring to the fact that, even when the boning supervisor abandoned his position and another supervisor took his place (as occurred several times, see id. at 725, 67 S.Ct. 1473), the same employees would continue to do the same work in the same place. Under Rutherford, therefore, this factor weighs in favor of a determination of joint employment when employees are tied to an entity such as the slaughterhouse rather than to an ostensible direct employer such as the boning supervisor. In such circumstances, it is difficult not to draw the inference that a subterfuge arrangement exists. Where, on the other hand, employees work for an entity (the purported joint employer) only to the extent that their direct employer is hired by that entity, this factor does not in any way support the determination that a joint employment relationship exists. 11 51 The fifth factor listed above — namely, the degree to which the defendants supervise the plaintiffs' work — also requires some comment, as it too can be misinterpreted to encompass run-of-the-mill subcontracting relationships. Although Rutherford indicates that a defendant's extensive supervision of a plaintiff's work is indicative of an employment relationship, see Rutherford, 331 U.S. at 730, 67 S.Ct. 1473 (noting that [t]he managing official of the plant kept close touch on the operation), Rutherford indicates also that such extensive supervision weighs in favor of joint employment only if it demonstrates effective control of the terms and conditions of the plaintiff's employment, see Rutherford, 331 U.S. at 726, 67 S.Ct. 1473 (suggesting the slaughterhouse owner's close scrutiny of the boners' work played a role in setting the boners' schedule); see also Antenor, 88 F.3d at 934 (growers exercised control over farmworkers when their supervision of the workers affected the workers' schedule). By contrast, supervision with respect to contractual warranties of quality and time of delivery has no bearing on the joint employment inquiry, as such supervision is perfectly consistent with a typical, legitimate subcontracting arrangement. See Moreau v. Air France, 343 F.3d 1179, 1188 (9th Cir.2003) (supervision of workers not indicative of joint employment where principal merely gave specific instructions to a service provider concerning performance under a service contract); cf. James Brian Quinn and Frederick G. Hilmer, Strategic Outsourcing, Sloan Mgmt. Rev., Summer 1994, at 43, 53 (explaining that [t]he most successful outsourcers find it absolutely essential to have both close personal contact and rapport at the floor level and political clout and understanding with the supplier's top management). 52 Finally, the Rutherford Court considered whether the purported joint employees worked exclusively or predominantly for the putative joint employer. In describing that factor, we use the words exclusively or predominantly on purpose. As noted in Lopez, the extent of work performed for a putative joint employer is not described in any decision ... as a separate factor for consideration. Id. at 417. However, it has implicitly [been] a factor, id., in cases in which the purported joint employees worked exclusively or predominantly for the purported joint employer. See Rutherford, 331 U.S. at 724-25, 67 S.Ct. 1473 (meat boners worked full-time on slaughterhouse's premises); Antenor, 88 F.3d at 927 (harvesters worked solely on growers' land even though they were hired by contractor). In those situations, the joint employer may de facto become responsible, among other things, for the amount workers are paid and for their schedules, which are traditional indicia of employment. 12 On the other hand, where a subcontractor performs merely a majority of its work for a single customer, there is no sound basis on which to infer that the customer has assumed the prerogatives of an employer. 53 In sum, by looking beyond a defendant's formal control over the physical performance of a plaintiff's work, the economic reality test — which has been distilled into a nonexclusive and overlapping set of factors — gives content to the broad suffer or permit language in the statute. See 29 U.S.C. § 203(g) (stating that an entity employs an individual for purposes of the FLSA if it suffer[s] or permit[s] that individual to work). However, by limiting FLSA liability to cases in which defendants, based on the totality of the circumstances, function as employers of the plaintiffs rather than mere business partners of plaintiffs' direct employer, the test also ensures that the statute is not interpreted to subsume typical outsourcing relationships. The economic reality test, therefore, is intended to expose outsourcing relationships that lack a substantial economic purpose, but it is manifestly not intended to bring normal, strategically-oriented contracting schemes within the ambit of the FLSA.