Caution - Employers Merge Ahead: Massachusetts Holding Endorses Potential Liability for “Joint Employers”

The Massachusetts appellate court decision in Tran v. Jennings Road Management, Corp., et al, gave the green light to an employee to pursue class action claims against her direct employer as well as a separate management company based on a finding that the two entities were “joint” employers.

This decision, together with the 2021 Supreme Judicial Court case on which the appellate court relied, serves as a warning to employers that sharing administrative and human resources duties with “outside” consultants or other companies may expose both companies to unforeseen liability.

After granting the parties’ request to decide the sole issue of whether the management company could face potential liability, the trial court concluded that the plaintiff, Sakiroh Tran, was jointly employed by Herb Chambers BMW car dealership, her direct employer, as well as Jennings Road Management Corp., a management company owned and controlled by Herb Chambers himself. Late last week, the Massachusetts Appeals Court affirmed the trial court’s decision citing the “totality of the circumstances” test set forth in Jinks v. Credico (USA) LLC, 488 Mass. 691, 692 (2021). This ruling paves the way for plaintiff to litigate her class action claims against multiple defendants.

Although a direct employer is traditionally the only viable defendant for wage law claims, the four factor “totality of the circumstances” test applied by the court endorsed the “joint employer” mechanism.  This permits potential claims against entities exercising “control over the nature and structure of the working relationship” and “control over the economic aspects of the working relationship.” The  court analyzed separate factors, including whether the alleged “joint employer”: (1) had the power to hire and fire employees; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined rate and method of payment; and (4) maintained employment records. Here, the court highlighted the administrative duties and practical functions JRM management provides for plaintiff’s dealership employer, including accounting, legal, training, and human resources functions, managing policy announcements, and negotiating and obtaining insurance and commercial group benefits. Not only did JRM perform these administrative functions for Chambers BMW, but scores of other dealerships owned by Chambers. Although JRM is not involved in hiring decisions, JRM advises dealership managers on disciplinary matters. Similarly, although JRM does not set or distribute employee pay, JRM is involved with reviewing pay plans for dealership employees, ensuring their content and form comply with legal requirements, and is fully responsible for the benefits offered to employees at Chambers BMW.

A key consideration supporting the court’s determination that JRM exercised substantial control over the conditions of plaintiff’s employment was the fact that JRM authored and administers the employee handbook and the policies contained therein. It is unclear whether and to what extent the common ownership and leadership of Herb Chambers BMW and Herb Chambers’s JRM management company factored into the decision, as the court’s analysis focused on the division of administrative duties.

Companies should therefore exercise caution before assuming that only direct employers are potentially liable for wage claims.  Relatedly, when an employer chooses to utilize a third party to assist with management of multiple entities, it should consult with counsel to ensure that the relationship is established and operated in a manner which does not trigger potential “joint employer” consequences.