A little knowledge is a dangerous thing. Less sophisticated employers who know about using the corporate form of doing business to limit liability often assume separate corporations are separate for all legal purposes. Particularly in labor and employment law, this is often a dangerously incorrect assumption.
Chao v. A-One Medical Services, Inc. (9th Cir. 10/06/03) illustrates this danger.
The Ninth Circuit affirmed summary judgment for the Secretary of Labor in an overtime case against two home health care businesses. A two-step analysis of the relationship between the companies was involved.
First, one of them was too small to be covered by the federal overtime law, as it did not have annual gross revenue of at least $500,000. Therefore, the court considered whether it and the other company could be viewed as a single “enterprise.”
Different organizations are treated as a single enterprise if three elements are established: 1) related activities; 2) unified operation or common control; and 3) common business purpose. These are discussed in some detail in the opinion.
The court found the companies were a single enterprise due to related activities (both being in home health care business, though somewhat different aspects of it) and common control (operationally and financially run by the same person). Common business purpose followed as a consequence of these conclusions (”a common business purpose is generally found where there are related activities and common control”).
The next step was determining whether to aggregate for overtime purposes the hours worked by employees who worked for both companies during the same workweeks. The court applied the following principle: “if the facts establish that the employee is employed jointly by two or more employers, i.e., that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee’s work for all of the joint employers during the workweek is considered as one employment . . . .”
The court referred to separate tests depending on whether the alleged joint employment is “vertical” (e.g., where a company has contracted for workers directly employed by an intermediary company) or ““horizontal” (as in this case, involving commonly controlled and/or owned companies).
The court applied 29 C.F.R. § 791.2, concluding the companies were joint employers because they were under the common control of one person, who oversaw the work being done for both companies’ clients and managed all the employees. The same nursing supervisors and scheduler were in charge of the employees while working for either company.
This case may be a somewhat unusual situation, but the point of more general importance is to keep an eye out for possible joint employer consequences in a wide variety of vertical and horizontal related-business situations. These can arise under all the employment laws, not just for overtime purposes. This document by the EEOC discusses some such issues in connection with contingent workers under the discrimination laws it administers.
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