By: Mark Wiletsky
Employers often struggle to determine whether they might be considered “joint employers” with other entities under the Fair Labor Standards Act (FLSA). The U.S. Department of Labor (DOL) is proposing new guidance on this topic, providing much-needed clarity for employers across the country.
DOL’s Proposed Rule Would Clarify Joint Employer Test Under the FLSA
In today’s economy, businesses often work together to provide services or products to consumers and other entities. For example, companies sometimes rely on staffing agencies to augment their workforces, and organizations contract with vendors to provide services such as landscaping, building maintenance, and cleaning. These and other business arrangements create the significant—and often difficult to assess—risk that the associated entities may be deemed “joint employers” under the FLSA, even if they are independently owned and operated. If associated entities are considered joint employers, each may be liable for paying minimum wage and overtime to employees, which can pose huge liability concerns where one entity fails to comply with applicable wage and hour law.
Unfortunately, determining whether two or more entities are in fact joint employers is no easy task. Different courts have formulated different tests for joint employer status, and the tests are often complicated and indeterminate.
DOL Proposes Simplified Test for Joint Employer Status
On April 9, 2019, the DOL published a Notice of Proposed Rulemaking, by which it sought to clarify its guidance on this topic. The DOL explained that the proposed changes would provide more certainty to businesses and hopefully minimize litigation over joint employer issues, which are laudable goals. In determining whether one entity is a joint employer with another entity, the DOL proposed a streamlined four-factor test which focused on whether the entity:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment;
- Determines the employee’s rate and method of payment; and/or
- Maintains the employee’s employment records.
Under this proposed test, the potential joint employer must actually exercise (directly or indirectly) one or more of these types of control to be deemed a joint employer. Conversely, if the entity simply has the contractual right or authority to exercise such control—for instance, if it may theoretically hire or fire employees—but if it never actually exercises this control, it will generally not be deemed to be a joint employer under the DOL’s new proposed test.
DOL Provides Examples and Other Clarifications
In addition to providing a new, simplified test for joint employer status, the proposed guidance also identifies certain relationships and conduct which would not, by themselves, create joint employment status. These include franchise arrangements, including where one entity provides sample employee handbooks (or other forms) to another entity as part of a franchise agreement. They also include arrangements where one entity allows an employer to operate facilities on its premises, where it jointly participates with an employer in an apprenticeship program, or where it offers or participates in an association health or retirement plan.
Similarly, the guidance provides that one entity may establish certain practices or minimum standards—such as workplace safety standards, sexual harassment policies, a wage floor, or other measures to encourage compliance with the law—without making joint employer status “more or less likely under the Act.” Accordingly, the guidance suggests that franchisors should generally not be punished for requiring franchisees to establish and maintain certain safety practices or harassment policies. On the other hand, if a franchisor actually enforces provisions in an employee handbook, or actually hires or fires a franchisee’s employees, it could be deemed a joint employer of the franchisee’s employees under the FLSA.
The DOL’s proposed guidance further clarifies that certain factors related to independent contractor status—such as whether a worker is employed in a specialized job, has the opportunity to experience a profit or loss, or invests in equipment or materials—are not relevant to determining joint employer status.
Notably, the DOL’s proposed guidance would not impact the test for determining joint employer status where one employer engages a worker for certain hours during a workweek, and where another employer engages the same worker for separate hours during that workweek. For instance, a cook who works for two different restaurants associated with the same nationwide franchise would not be a joint employee of both restaurants if the establishments were independently owned and did not coordinate in any way with respect to the cook’s work. But if, on the other hand, there were common ownership and coordination of the cook’s schedule and pay, the two establishments could be considered joint employers under the proposed test.
Comments
The DOL is now considering comments submitted by interested parties and it may amend or modify its proposed new test. Or, the DOL could simply adopt and issue in final form the guidance it published on April 9. The DOL has no set deadline to issue its final rule, but once that occurs, courts will have to weigh in on the appropriate level of deference to afford to the new administrative guidance. Keep in mind that the National Labor Relations Board (NLRB) is similarly considering additional guidance on joint employer status under the National Labor Relations Act. One can only hope that the guidance issued by the NLRB will be consistent with that issued by the DOL.
Mark Wiletsky may be reached at mbwiletsky@hollandhart.com.
