On January 13, 2020, the U.S. Department of Labor issued its final rule to update and revise the department’s interpretation of joint employer status under the Fair Labor Standards Act (FLSA).
Under the FLSA, “employer” is broadly defined to “include any person acting directly or indirectly in the interest of an employer in relation to an employee.” Under this provision, an employee can have two or more employers who are jointly and severally liable for the wages due the employee (i.e., joint employers).
Since 1958, the DOL’s guidance as to when an employee should be considered to be jointly employed by two entities largely focused on whether one entity was “completely disassociated” from the other.
The DOL’s new rule, which is set to go into effect on March 16, 2020, revises this guidance by first distinguishing between two joint employer scenarios under the FLSA: (1) where the employee has an employer who suffers, permits, or otherwise employs the employee to work, but another person simultaneously benefits from that work (i.e. vertical joint employment), and (2) where one employer employs a worker for one set of hours in a workweek, and another employer employs the same worker for a separate set of hours in the same workweek (i.e. horizontal joint employment).
In the vertical joint employment scenario, the DOL has adopted a four-factor balancing test for determining joint employer status. The test will require an assessment of whether the other person or entity:
hires or fires the employee;
supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
determines the employee’s rate and method of payment; and
maintains the employee’s employment records.
No single factor is dispositive in determining joint employer status, and the appropriate weight to give each factor will vary depending on the circumstances. However, the satisfaction of the maintenance of employment records factor alone does not demonstrate joint employer status. Other factors may be considered in appropriate circumstances, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.
In the horizontal joint employment scenario, the DOL has adopted “non-substantive revisions” to the existing regulations’ “not completely disassociated” analysis for determining joint employment status that provide “if the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining compliance with the Act.” The rule goes on to state that employers “will generally be sufficiently associated” if there is “an arrangement between them to share the employee’s services;” “[o]ne employer is acting directly or indirectly in the interest of the other employer in relation to the employee;” or [t]hey share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.” The rule also notes that “[s]uch a determination depends on all of the facts and circumstances” and that “[c]ertain business relationships … which have little to do with the employment of specific workers — such as sharing a vendor or being franchisees of the same franchisor — are alone insufficient to establish that two employers are sufficiently associated to be joint employers.”
According to the DOL, these revisions are necessary to “promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.”
The DOL’s publication provides a detailed analysis of their rulemaking and guidance on application of the final rule, which can be accessed here.