By: Claudia D. Orr
The US Department of Labor has just issued “Administrator’s Interpretation No. 2016-1” providing guidance on joint employment. According to the DOL, there is a growing variety and number of business models and labor arrangements that have made joint employment far more common than in the past and it considers joint employment issues in literally hundreds of investigations each year. So, why is this big deal? The DOL may find that all of the hours worked by the employee for either of the joint employers are hours worked for purposes of determining overtime pay and the DOL may hold each of the joint employers liable for any violations.
The DOL analyzes joint employment relationships as either horizontal or vertical in nature, but, “[g]iven the complexity of employment relationships, aspects of both horizontal and vertical joint employment may be present in a single joint employment relationship.
The focus in horizontal joint employment relationships is the relationship between the two entities including such things as-
- whether one company owns part or all of the other company;
- whether they share common owners or have overlapping officers, directors, executives or managers;
- whether they share control over the hiring and firing of employees or the costs of payroll or overhead;
- whether just one company pays employees regardless of which entity actually benefits from their labor;
- whether they treat the employees as a pool of workers that can be shared; and
- whether they share clients.
Examples of a horizontal joint employment relationship include where a waitress works for two restaurants that are technically separate but related as explained above, or entities that share “back office” services such as accounting or payroll. In such cases, if, in a single work week, the waitress or accounting clerk works 25 hours for each of the two restaurants, she would be entitled to 10 hours overtime pay by virtue of the horizontal joint employment relationship. If, in our example, the employee is not paid time and one half the regular rate of pay for 10 hours, the DOL can hold one or both employers equally and separately responsible for the wage violation. Thus, it is important for each entity to know how many hours in total were worked by the employee to ensure there is no violation of wage laws.
By comparison, the focus in vertical joint employment relationships is the relationship between the employee and each of the two companies. Here, the employee clearly works for the “intermediary employer” (for example a staffing company), but that company has contracted with the “potential joint employer” to provide it with employees who will primarily service its needs.
A threshold question for vertical joint employment is whether the intermediary employer (who may just be a person who is responsible for supplying workers) is actually an employee of the potential joint employer. When this occurs, all of the intermediary employer’s employees are also employed by the joint employer. The guidance uses the example of a “farm labor contractor” (the intermediary employer) who is an employee of the grower (the potential joint employer). This would make all of the farmworkers he supplies to the grower employees of the grower.
If, however, the “intermediary” employer is not an employee of the potential joint employer, then a vertical joint employer analysis must be completed using the economic realities test to determine whether there is an employment relationship between the employee (of the intermediary, for example the staffing company) and the “potential” joint employer.
The economic realities test looks at such factors as-
- the degree of control over the employee’s work, schedule and working conditions;
- the permanency/duration of the relationship;
- whether the work is unskilled and repetitive;
- whether the work is integral to the business and performed on the premises of the potential joint employer; and
- whether the potential joint employer performs administrative functions typical of an employer (such as providing tools and materials, safety training or equipment, handling payroll or worker’s disability compensation, etc.).
Apparently, each of the federal appellate circuits puts its own spin on these factors and some also focus heavily on the potential joint employer’s power to hire, fire, discipline, schedule, determine rates of pay, maintain personnel files, etc. The focus, however, is always the economic reality of the relationship between the employee and the potential joint employer, not the relationship between the two companies.
Remember, the mere fact that an employee works for two completely separate companies (as many workers today do) does not make those companies “joint employers.” But, where a joint employment relationship exists, the employers may be held equally responsible for ensuring compliance for all provisions of the FLSA including overtime pay, and the DOL may seek to hold both employers responsible for any violation.
In my experience, most employers are oblivious to the idea of joint employment relationships or that hours worked for either company may be stacked for purposes of overtime pay. If you have any questions about the wage laws or any other employment related issues, always consult an experienced employment attorney, such as the author.
This article was written by Claudia D. Orr, who is Chair of the Legal Affairs Committee of Detroit SHRM, and an experienced labor/employment attorney at the Detroit office of Plunkett Cooney (a full service law firm and resource partner of Detroit SHRM). She can be reached at firstname.lastname@example.org or at (313) 983-4863. http://www.plunkettcooney.com/people-105.html.
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