The Emplyer's Legal Resource: DOL Releases Joint Employer Liability Guidelines For Wage and Hour Issues

02.01.16

Rarely does a business act autonomously as to its employees. It might from time to time use a temporary staffing agency to fill a vacancy. It might use contract labor. It might assign some of its employees to perform work at a customer's business on a project. Business is interrelated. The various government agencies that, through regulation, govern employer-employee relations have been busy tightening the rules on when businesses might be liable for another business' employee under the theory of "joint employer" liability. In 2015, the National Labor Relations Board (NLRB) and the Occupational Safety and Health Administration (OSHA) significantly expanded the joint employer test by making the mere right to control the worker sufficient to establish a joint employment relationship, even if that right to control is never exercised.

On January 20, 2016, the Wage and Hour Division of the Department of Labor (DOL) issued Administrator's Interpretation No. 2016-1, indicating it will likewise take an aggressive approach that is "as broad as possible" in determining whether entities are joint employers under the Fair Labor Standards Act (FLSA). As set forth in the guidelines, the DOL's test for determining joint employment under the FLSA involves examining a number of factors to determine whether the individual is economically dependent on the alleged employer--a much broader test than the indirect control standard used by the NLRB and the OSHA. For example, a franchisor that has taken careful measures to engage in arm's length negotiations with a franchisee may not be a joint employer for purposes of the National Labor Relations Act or Occupational Safety and Health Ac t, but could be a joint employer under the DOL's "economic realities" test.

NOTE: In a concurrently issued Q&A on joint employment, the DOL singled out the industries of home health care, construction, agriculture, warehousing and logistics, staffing, and hospitality as the most likely affected industries.

Implications for joint employers

Under the FLSA, each joint employer must ensure that the employee receives all employment-related rights under the FLSA (including the federal minimum wage and overtime pay). In addition, joint employers are jointly and severally liable to employees for compliance with the FLSA. This means that liability is not divided proportionately among joint employers. For example, if one joint employer cannot pay an employee's wages, then the other employer must pay the entire amount.

As a practical matter, joint employers under the FLSA are also joint employers under the Family and Medical Leave Act (FMLA), which uses the FLSA's definition of "employ." More information regarding the obligations of joint employers under the FMLA is provided in the DOL's Fact Sheet #28N.

Determining if joint employment exists

According to the DOL's Fact Sheet #35 on joint employment under the FLSA, the most likely scenarios for joint employment are:

  1. Where the employee has two (or more) technically separate but related or associated employers ("horizontal joint employment"), or
  2. Where one employer provides labor to another employer and the workers are economically dependent on both employers ("vertical joint employment").

"Horizontal joint employment" may exist when an individual has employment relationships with two or more employers which are sufficiently associated with or related to one another such that they are considered to jointly employ the person. Here, the focus is on the relationship between the potential joint employers and the degree to which they share control of the employee. Examples of possible horizontal joint employer situations include a waitress who works for two separate restaurants that are operated by the same entity; a farmworker who picks produce at two separate orchards, each of which has an arrangement to share farmworkers; and a home health care provider who works for two different companies that share staff and have common management.

Nine factors may be relevant when analyzing the degree of association between, and sharing of control by, potential horizontal joint employers:

  • who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
  • do the potential joint employers have any overlapping officers, directors, executives, or managers;
  • do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
  • are the potential joint employers' operations intermingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
  • does one potential joint employer supervise the work of the other;
  • do the potential joint employers share supervisory authority for the employees;
  • do the potential joint employers treat the employees as a pool of employees available to both of them;
  • do the potential joint employers share clients or customers; and
  • are there any agreements between the potential joint employers?

"Vertical joint employment" may occur when an individual has an employment relationship with an intermediary employer, such as a staffing agency, contractor, or labor provider, but is economically dependent on another employer (the potential joint employer) that has contracted with the intermediary employer to receive the benefit of the employee's work. Examples of possible vertical joint employer situations are a garment worker who is directly employed by a contractor who contracts with a garment manufacturer to perform a specific function; a nurse placed at a hospital by a staffing agency; and a warehouse worker whose labor is arranged and overseen by layers of intermediaries between the workers and the owner of the warehouse.

The initial question to be asked in a vertical joint employment case is whether the intermediary employer is an employee of the potential joint employer. If that is so, then all of the intermediary's employees are employees of the potential joint employer. Where the intermediary is not an employee of the potential joint employer, the analysis should focus on a number of factors which are probative of whether the employee is "economically dependent" on the potential joint employer who, through some arrangement with the intermediary employer, benefits from the individual's work. To determine if the employee is economically dependent on the potential joint employer, the DOL will look to these factors: directing, controlling, or supervising the work performed; controlling employment conditions; permanency and duration of the relationship; repetitive and rote nature of the work; integral to business; work performed on premises; and performing administrative functions commo nly performed by employers.

Next steps for businesses

While the DOL's Administrator's Interpretation does not have the force of a statute or regulation and is not binding on the courts, it does signal the DOL's willingness to aggregate employees of companies that are interrelated or that use contingent workforces if those workers are not being paid in accordance with the FLSA. Additionally, the guidelines may embolden more plaintiffs' attorneys to bring suits on behalf of shared and contingent workers, requiring businesses to defend wage and hour claims by individuals whom they have never considered their employees.

In light of the DOL's new guidelines, businesses should assess their worker relationships--specifically, contingent work arrangements, employees shared with an affiliated company, and workers engaged through an independent contractor, staffing agency, or labor provider. While each situation will be unique and require a thoughtful analysis of the facts, businesses can proactively reduce their risk of a joint employer determination by taking the following steps:

1. Avoid any direct payments to employees of another company.
2. Keep administrative operations of interrelated companies separate.
3. Do not closely supervise the work of another company's employees as it is performed.
3. When issues arise regarding performance of another company's employees, deal through their employer, rather than directly with the individuals.
4. If possible, do not share employees with an affiliate company.
5. Enter into written agreements with other companies that spell out the terms of the relationship (e.g., who will be responsible for payment, withholdings, discipline, etc.)

By Destyn D. Stallings, dstallings@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment
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