Department of Labor Publishes Final Regulation: “Joint Employment”

By:  Claudia D. Orr, Plunkett Cooney

This month, the US Department of Labor (“DOL”) issued the final rule revising its regulations that interpret joint employer status under the Fair Labor Standards Act (“FLSA”). There are two primary scenarios for determining joint employer status under the FLSA. Only the first was affected by the final rule.

In its January 12th announcement, the DOL explained the affected first scenario stating: “The final rule provides updated guidance for determining joint employer status when an employee performs work for his or her employer that simultaneously benefits another individual or entity, including guidance on the identification of certain factors that are not relevant when determining joint employer status.” (Emphasis added)

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 the DOL considers joint employment issues in literally hundreds of investigations each year.  So, why is this big deal? Because if the DOL finds a joint employer relationship, then all of the hours worked by the employee for either of the joint employers are hours worked for purposes of determining overtime pay each week. In addition, the DOL may hold each of the joint employers liable for any violations.

The new regulations, which were published on January 16, 2020 in the Federal Register, apply a balancing test that examines whether the potential joint employer:

  • 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.

Significantly, the potential employer must actually exercise control over the worker. Simply having the ability is relevant, but it is not determinative without some actual exercise of control.

The DOL notes that factors such as whether there is a franchise agreement, or contracts in place obligating compliance with health/safety or quality standards do not make a joint employer relationship more, or less, likely. Nor is the provision of a sample handbook or other employment forms, participating in an apprenticeship program or providing association health care or retirement plans particularly relevant to the analysis.

In fact, “whether the employee is economically dependent on the potential joint employer, including factors traditionally used to establish whether a particular worker is a bona fide independent contractor (e.g., the worker’s opportunity for profit or loss, their investment in equipment and materials, etc.), are not relevant to determine joint employer liability.”

In its Jan 2020 Fact Sheet, the DOL indicated that the test for the “second scenario” remained largely unaffected by the final rule, explaining as follows:

If the employers are acting independently of each other and are disassociated with respect to the employment of the employee, each employer may disregard all work performed by the employee for the other employer in determining its liability under the FLSA.

The DOL cautioned, however, that if the employers are “sufficiently associated with respect to the employment of the employee” they will be determined to be joint employers which will require them to aggregate all of the hours the employee works for both of the employers for purposes of overtime compliance:

The employers will generally be sufficiently associated if there is an arrangement between them to share the employee’s services, the employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or they 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.

In my experience, most employers are oblivious to the concept of joint employer relationships or that hours worked for either company may need to be stacked for purposes of overtime pay calculations.

The final rule, which becomes effective March 16, 2020, provides several examples of how the DOL analyzes joint employer relationships in various situations. Finally, remember, this is the test applied only under the FLSA.  There are different tests under the National Labor Relations Act, civil rights laws and for pensions and welfare benefits under the Employee Retirement Security Act, to name a few.  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 Secretary of the Board of Detroit SHRM, a member of the Legal Affairs Committee, and an experienced labor/employment attorney at the Detroit office of Plunkett Cooney (a full service law firm and resource partner of Detroit SHRM) and an arbitrator with the American Arbitration Association. She can be reached at corr@plunkettcooney.com or at (313) 983-4863. For further information go to: http://www.plunkettcooney.com/people-105.html

 Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information, is included in the re-post of the article. January 2020.