DOL Issues New Joint Employment Rule

January 30, 2020 Posted in Legal Updates

The Department of Labor has issued a final rule to revise and update regulations implementing the Fair Labor Standards Act (“FLSA”) as they relate to the “joint employment” doctrine. The Final Rule will become effective
March 16, 2020.

The joint employment doctrine refers to the Department of Labor’s long-held interpretive stance that an employee may have one or more “joint” employers. An “employer” is defined under the FLSA as “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” Where a joint employment relationship is found, each joint employer is jointly and severally liable for the employee’s wages under the FLSA, which include minimum wages and overtime wages.

The final rule provides clarity for employers to determine when joint employment may be found. First, joint employment will be found when an employee performs work for his or her employer, and that work simultaneously benefits another individual or entity. To determine whether a situation will meet this standard, the final rule abandons the previous “not completely isassociated” standard and sets forth a four-factor balancing test, which considers whether the potential joint employer:

1. hires or fires the employee;
2. supervises and controls the employee’s work schedule or conditions of employment to a substantial
3. sets the employee’s rate and method of payment; and
4. maintains the employee’s employment records.

Because the Department cautions that joint employment analyses are fact-specific, the weight to give each of the above four factors varies and depends on the circumstances (though the final rule specifically states that maintenance of employment records alone will not suffice to show joint employment). Further, a person or entity’s mere ability, power, or reserved right to exercise these control factors” will not be considered unless there is not some actual exercise of control. Indirect control is exercised through mandatory directions to another
employer that directly controls the employee; but, the direct employer’s voluntary decision to grant the potential joint employer’s request, recommendation, or suggestion does not constitute indirect control that can demonstrate joint employer status. Other factors may be considered in addition to the four control factors if they show whether the potential joint employer exercises significant control over the employee’s terms and conditions of work. The final rule also provides clarity by elaborating on what factors will not be determinative in a joint employment analysis. Specifically, one employee’s “economic dependence” on another employer does not determine whether the employees are joint employers under the FLSA; this renders many factors customarily used to determine whether an employee is an independent contractor to be irrelevant to the joint employment analysis. Other factors that the Department lists as not being determinative are:

  • operating as a franchisor or entering into a brand and supply agreement, or using a similar business model;
  • an entity’s contractual agreements with the employer requiring the employer to comply with its legal
    obligations or to meet certain standards to protect the health or safety of its employees or the public;
  • an entity’s contractual agreements with the employer requiring quality control standards to ensure the
    consistent quality of the work product, brand, or business reputation; and
  • an entity’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.

These factors do not render a joint employer finding more or less likely.

In addition to situations showing joint employment because an employee’s work benefits another individual or entity, joint employment may also be found when one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek. Joint employment exists in these situations where the two employers are sufficiently associated with respect to the employment of the employee. Generally, the employers will be sufficiently associated if there is an
arrangement between them to share the employee’s services, if one employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or if the two employers 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. Where joint employment is found in these circumstances, the employers must aggregate the hours an employee performs work for each for when calculating appropriate wage rates. The final rule did not substantively change traditional interpretation of joint employment in these situations.

Finally, the final rule provides examples applying the Department of Labor’s guidance for determining FLSA joint employer status in a variety of different factual situations, which may be helpful points of reference for employers.

In issuing the final rule, the Department of Labor states that its goals include promoting greater uniformity among court decisions, reducing litigation, and even encouraging “innovation in the economy.” To this end, the final rule shows the agency’s efforts to recognize and adapt to the changing shapes of the workforce; it also may signify the administration’s policy shifts favoring employers, further evidence of which can be gleaned from recent rulemaking and interpretation in other areas under the Department’s purview.

Employers should bear in mind that the Department of Labor’s final rule governs only joint employment as it impact’s an employer’s responsibilities under the Fair Labor Standards Act. Other employment-related laws, such as Title VII of the Civil Rights Act of 1964, as amended, and the National Labor Relations Act, have joint employment tests which vary and have been interpreted differently than the test promulgated under the Department of Labor’s authority.

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