Co-Employment

The six-factor test to determine whether a company is a joint employer of an employee of a subcontractor:

1. Whether the company's premises and equipment are used for the employee's work;
2. Whether the subcontractor has a business that can or does shift as a unit from one putative joint employer to another;
3. The extent to which the employee performs a discrete line-job that is integral to the company's process of production;
4. Whether responsibility under a contract between the subcontractor and the company could pass from one subcontractor to another without material change;
5. The degree to which the company or its agents supervise the employee's work; and
6. Whether the employee works exclusively or predominantly for the company.

Other points of interest:

• Outsourced work should be done off-premises to the greatest extent possible, understanding that in many contexts, such as office or cafeteria services, this is not possible;
• The subcontractor should own and maintain the equipment needed to perform the outsourced services to the greatest extent possible;
• The subcontractor should be a sufficiently large and profitable company in its own right such that it is simultaneously engaged in similar outsourcing relationships with other clients – or, at the very least, has the resources to do so;
• The employees should expressly "belong to" the subcontractor in the outsourcing agreement and move with the subcontractor when the agreement terminates;
• The subcontractor should be responsible for setting work schedules, rates and methods of pay, and disciplining the employees if necessary – ideally through on-site supervisors. "Quality control" should be vested in the subcontractor’s supervisors to the greatest extent possible, although the client retains the right of ensuring contract performance; and
• The outsourcing agreement should conform to any applicable state law requirements. California, for example, has recently enacted legislation containing specific requirements for outsourcing agreements in certain contexts, including the outsourcing of janitorial and security services. Cal. Lab. Code § 2810.
• The subcontractor should have a record of complying with the FLSA and state labor laws in all jurisdictions in which it performs under outsourcing agreements.