Although “joint employment” is not a new legal concept, in recent years federal agencies such as the Department of Labor and National Labor Relations Board have made aggressive efforts to expand its application. The targets of those who seek to expand the concept of joint employment are typically employers who use independent contractors (common in the construction industry), those who hire vendors to perform certain tasks (e.g. janitorial services), employers that rely upon a staffing agency to supply workers, and even franchisors (e.g. McDonald’s) that license their business model to independent operators. Of course, one of the reasons an employer might use vendors, contractors, or staffing agencies is to delegate to others certain obligations that come with having employees, such as payroll administration, wage and hour compliance, collective bargaining, or workplace safety. But, the agencies seeking to expand joint employment want the employers who try to delegate such tasks to remain legally responsible, along with the contractor, vendor, or staffing agencies, for violations of the employment and labor laws.
The good news for employers is that these same agencies that pushed for expanded joint employment a few years ago are now dialing back. They are also trying to create more clarity for employers about when joint employment does or does not exist, so employers have more certainty about their legal obligations. The first of these efforts occurred last week. On January 16, the U.S. Department of Labor is published a final regulation to update and revise the Department’s interpretations of joint employer status under the Fair Labor Standards Act (FLSA).
With these new regulations, the DOL aims to “promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.” Other agencies with jurisdiction over employers, including the NLRB and EEOC, are also working on revising their standards governing joint employment, supposedly in a way that harmonizes with DOL’s approach.
The DOL’s new rule examines whether the potential joint employer is actually a joint employer under the FLSA based upon the following four factors:
- Who hires or fires the employee;
- Who supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Who determines the employee’s rate and method of payment; and
- Who maintains the employee’s employment records.
No one single factor is controlling and the weight to be given each factor will vary on a case-by-case basis. Importantly, however, the rule provides additional guidance on how to apply the four factors. For example, the potential joint employer must actually exercise one or more of the control factors. The contractual right to act in relation to the employee may be relevant, but such right does not alone demonstrate joint employer status in the absence of actual exercise of control.
In addition, the final rule states that an employee’s economic dependence on the potential joint employer is no longer relevant on joint employer liability under the FLSA. This is a significant change in the analysis of a joint employment relationship, and substantially reduces joint employer situations. The rule cites specific factors that are not to be considered indicia of economic dependence, including, whether the employee’s work requires special skill; whether the employee has the opportunity to control profit and loss; and whether the employee invested in equipment or materials. These “economic reality” concepts are no longer part of the FLSA’s joint employer analysis.
Finally, the rule identifies specific business models and practices that do not make joint employer status more likely under the FLSA. Such models and practices include:
- Franchise model;
- Allowing the operation of a store on one’s premises;
- Requiring a vendor or independent contractor to have a sexual harassment policy;
- Providing a sample handbook or forms;
- Participating in an association health or retirement plan;
- Requiring, monitoring, and enforcing other businesses’ compliance with quality control standards to ensure the consistent quality for a work product, brand, or business reputation
While the DOL’s new rule helps to clarify the circumstances under which that agency will pursue liability for joint employment, it is important to remember that, as of now, other agencies have their own tests that do not necessarily mirror the DOL’s new standard. In addition, each state’s common law, as well as stage agencies, apply tests that may or may nor comport with the DOL’s more business friendly approach. A this point, it is also too early to tell whether courts will adopt the DOL’s new approach to joint employment. Employers trying to avoid joint employment liability must continue to tread carefully, and consider the myriad agencies and jurisdictions that have an interest in joint employment.