Unmasking the charade of the global supply contract: a novel theory of corporate liability in human trafficking and forced labor cases.

• Author: Bang, Naomi Jiyoung
• Position: III. Economic Realities Test C. Introducing the Economic Realities Test 3. Problematic Issues with the Economic Realities Test through VI. Conclusion, with footnotes, p. 292-322

3. Problematic issues with the economic realities test

Despite the strong origins of the economic realities test, (215) different viewpoints, conflicting applications, and even different tests arose among the courts and circuits. (216) Some courts watered down the pure strand of economic realities test by expanding the analysis to a "totality of circumstances" test. (217) Many followed Silk's five-pronged test, yet ended up with disparate results under similar facts. (218) Others invented and applied tests that were completely different. (219) These varying applications created tension.

First, in some cases, there is tension between the common law test and the economic realities test. (220) This ambivalence is seen in the undertones of various court opinions that spout out "dependency of worker" sound bites, voicing a willingness to throw out the common law test as outdated and ineffective, but are unable to let go of the common law test. (221) Naturally, this ambivalence results in decisions that contravene the purpose of the relevant statute and add to the confusion. (222) For example, in Bartels, the court appeared to give lip service to the economic realities test and ultimately ruled in favor of the employer. (223) Here, the issue was whether band members were employed by the dance hall where they performed or their bandleader, who contracted with the dance hall. (224) In rejecting the dance hall as an employer or a joint employer with the band leader, the Court emphasized typical physical "control" facts such as the band leader's having organized, trained, and selected the band members, and other more immediate indicia of control such as who bore maintenance costs as well as the loss or gains after payment of wages and expenses. (225) Although the court stated that it would not focus on the "idea of control of the employer over details of the service rendered to his business," and intended to apply "social legislation [viewing] employees [as] those who as a matter of economic reality are dependent upon the business to which they render service," the court ended up according more weight to common law factors of control. (226) In one sense, the court conducted a hybrid common law analysis. [227] The conflict in the analysis and holding in Bartels was visibly exemplified by the dissenting opinion of three members of the Court, who pointed out that alternatively, the dance hall owner could also be considered the employer because "he has all of the conventional earmarks of the entrepreneur--ownership, profit, loss, and control," and that "the requirements of the Social Security Acts [were] satisfied," since "hold[ing] the dance hall proprietor liable for the tax is not to contract the coverage contemplated by the statutory scheme." (228)

In Goldberg, the court appeared to split the baby and conducted both an economic reality analysis and a common law control test even though it ultimately concluded that home-based workers who sewed, knitted and embroidered products for a co-op were employees of the co-op. (229) On one hand, it focused on dependency factors and found significant the fact that workers were "regimented under one organization, manufacturing what the organization desires and receiving the compensation the organization dictates. (230)

However, it also balanced classic common law factors of managerial control such as the fact that "[t]he management fixe[d] the piece rates at which they work" and could "expel [the worker] for substandard work or for failure to obey the regulations," essentially, the power to "hire or fire the ... workers." (231) The Court also made a passing reference to the "suffer to work" language of the FLSA statute, another test for which scholars have advocated in lieu of the "economic realities test." (232)

Even within the economic realities test, there is disagreement as to which factors should be used, leading to some unpredictability. (233) Some courts have expanded the number of factors to include such things as:

(1) the degree of the alleged employer's right to control the manner in which the work is to be performed;

(2) the alleged employee's opportunity for profit or loss depending upon his managerial skill;

(3) the alleged employee's investment in equipment or materials required for his task, or his employment of helpers;

(4) whether the service rendered requires a special skill;

(5) the degree of permanence of the working relationship;

(6) and whether the service rendered is an integral part of the alleged employer's business. (234)

While these factors all seem to reflect a concern with the dependency test, as found in Silk, the uncertainty of which test to use, or the ability to invent a new test, adds to an already unpredictable playing field. (235)

Many courts have adopted the Silk and Bartel Courts' five-prong approach using dependency factors. (236) Other courts, however, appear unable to let go of common law roots, applying more restrictive factors and centering their inquiry on employer control factors such as whether the alleged employer: "(1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records." (237) Since these factors mirror the traditional physical control test, the results inevitably favor an outcome against joint employment. (238) Other times, courts have allowed more restrictive common law factors, such as who hired, supervised or paid the workers, to creep into the analysis and have determined coverage under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (AWPA). (239)

As Professor Lung has observed, "©ourts decide rather arbitrarily which factors to employ and, without articulated interpretative frameworks to guide their decisions, courts oscillate between different versions of the factors, resulting in inconsistencies within circuits." (240) This leads to an added layer of unpredictability as courts appear to pick and choose the factors that they want to apply, giving them unexplainable weight in some decision and none in others. (241)

1. Fighting common law

   To show how entrenched common law notions are in the courts, we turn to a case that demonstrates how fiercely corporations (and courts) cling to the old common law analysis to defeat corporate liability in even the most egregious forced labor situations. The Ninth Circuit's holding in Doe v. Wal-Mart demonstrates these difficulties in a classic overseas global supply contract scenario that serves as context for this Article. (242) In Wal-Mart, workers from Wal-Mart's factories in various foreign countries filed a class action complaint in California regarding sub-standard work conditions in which they were forced to produce Wal-Mart products. (243) The plaintiffs attempted to hold Wal-Mart liable as a joint employer with their foreign suppliers from countries like China, Bangladesh, Indonesia, Swaziland and Nicaragua. (244) The federal court (to which the case was removed) rejected the joint employer argument, steadfastly applying the common law test of control, and holding that "[t]he key factor to consider in analyzing whether an entity is an employer is 'the right to control and direct the activities of the person rendering service, or the manner and method in which the work is performed."' (245) The court equated the concept of "control" to physical proximity as well as frequency of contact, holding that "[a] finding of the right to control employment requires ... a comprehensive and immediate level of 'day-to-day' authority over employment decisions." (246)

   Although there was no discussion of an economic reality argument or issue in the opinion, what is telling is the court's ease in summarily dismissing significant factors such as supplier contractual terms of "deadlines, quality of products, materials used, [and] prices." (247) The court rejected these factors, characterizing them as insufficient to find that Wal-Mart exercised an "immediate level of 'day-to-day' control" between a purchaser and a supplier's employees. (248) Ironically, these very contract terms concerning price and deadlines are the factors forming the crux of the economic realities test. Consideration of these terms would have yielded the opposite finding of dependence by the workers and a conclusion that Wal-Mart was clearly a joint employer with its contractors. (249) By ignoring Plaintiffs' attempts to apply the FLSA definition of "joint employer," the court ceded to Wal-Mart's argument to adhere to a "strict application of traditional agency law principles." (250)

2. Watering down and confusion

   Under the guise of broadening the analysis, other courts have advanced a "totality of the circumstances" test, effectively diluting the true economic realities test. (251) Some courts reject the exclusive various factored tests and significantly open the field of analysis, stating "that courts are permitted to consider any other factors they deem relevant to the economic realities calculus." (252) Not only does this muddy the test parameters, it creates an unspoken catchall to slip in traditional common law factors, depending on the court's leanings. While commending the economic realities test's factors as "certainly relevant," courts still hedge their bets by stating that "it would be foolhardy to suggest that these are the only relevant factors, or even the most important." (253) While some courts are able to work within a more amorphous test requiring an inquiry and mindset focusing on the general dependency of the worker, (254) there is a real danger that other courts may find an escape hatch to revert back to the common law test. (255)

   Finally, other courts come up with their strands of their own "economic realities" test even though they may have nothing in common with models enunciated in Hearst or Silk. (256) Velez v...