Dive Brief:

• A hospitality management company was a joint employer for purposes of a hotel employee's sexual harassment claim, the 7th U.S. Circuit Court of Appeals has ruled (Frey v. Hotel Coleman Inc., et al., No. 17-2267 (Sept. 11, 2018)).
• Hotel Coleman Inc. owned a Holiday Inn Express franchise in Algonquin, Illinois. It hired Vaughn Hospitality to run the daily operations of the hotel. Vaughn Hospitality was responsible for hiring, supervising, directing, and discharging employees and determining the compensation, benefits and terms and conditions of their employment. They were on Hotel Coleman's payroll, however. When a guest services employee complained that Vaughn's owner subjected her to sexual harassment, her concerns went unaddressed, she alleged in a later lawsuit. She also was subjected to discrimination based on pregnancy and fired a week after she returned from maternity leave, according to court documents.
• A district court determined that Vaughn wasn't her employer and couldn't be jointly liable for the alleged violations. On appeal, however, the 7th Circuit said the lower court had applied the wrong standard. The appeals court said that Knight v. United Farm Bureau Mut. Ins. Co., 950 F. 2d 377 (7th Cir. 1991) instructs courts in the area to employ a five-factor "economic realities" test. Moreover, the most important factor under that test is "the extent of the employer’s control and supervision over the worker, including directions on scheduling and performance of work." Applying the Knight test, the district court would have concluded that Vaughn Hospitality was Frey’s employer, the appeals court said.

Dive Insight:

Joint employment liability remains a gray area and a hot topic under both the National Labor Relations Act and the Fair Labor Standards Act, as federal agencies work to address employers' concerns.

But it remains a concern under laws like Title VII as well. Earlier this summer, the 7th Circuit applied the Knight test and likewise overturned a lower court decision, allowing Title VII race discrimination claims brought by a group of African-American janitors who sued an Oak Lawn, Illinois, medical center to move forward.

While control is an important aspect of Title VII joint employer claims in the 7th Circuit, the National Labor Relations Board (NLRB) has been trying to jettison an Obama-era joint employer standard that expanded the definition of "joint employer" to companies that have "indirect control" over workers. That standard was met with intense backlash from employers, who said the ruling threatened well-established franchising relationships, among others.

In its latest attempt, the NLRB has proposed a new joint-employer standard under which an employer may be jointly liable only if the two employers share or co-determine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction.

Businesses may need to carefully consider the implications of contracting arrangements. Joint employment has emerged as a major issue in franchising, contracting, temporary staffing and other arrangements in which companies use workers they do not directly employ. Courts remain split on how best to define "joint employment," and the tests vary for different laws as well.