U.S. Department of Labor Issues New Guidance on Joint Employment Under the FLSA and MSPA U.S. Department of Labor Issues New Guidance on Joint Employment Under the FLSA and MSPA

U.S. Department of Labor Issues New Guidance on Joint Employment Under the FLSA and MSPA

Citing the nature of the evolving workplace and the expanded possibilities for joint employment of workers by two or more employers, the Department of Labor (“DOL”) joins the ranks of the National Labor Relations Board (“NLRB”) and the Occupational Safety and Health Administration (“OSHA”), by issuing new guidance on when businesses and organizations are considered joint employers.  In an “Administrator’s Interpretation” (“AI”) released on January 20, 2016, the Department’s Wage and Hour Division (“WHD”) established new clarifying standards for determining joint employment under the federal Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”).   While it is still unknown how much weight will be afforded the AI, it is reasonable to view this new guidance as an expansion of joint employment that could result in more employers being held liable for unpaid wages, overtime pay, and other penalties under joint employment theories going forward.
 
Joint Employment
 
The concept of joint employment, or that an employee can have more than one employer, is well established.  As provided in the AI, “[w]hen two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the week are aggregated and considered as one employment, including for purposes of calculating whether overtime payment is due.”  Importantly, when joint employment is established, each employer is jointly and severally liable for compliance with the FLSA and MSPA.  Hinting perhaps at the overarching purpose of this guidance, the AI emphasizes that liability is equally applicable for both large and smaller employers who may not otherwise on their own be required to comply with these statutes.  
 
The AI specifically mentions certain industries where it routinely encounters joint employment scenarios, including the construction, agricultural, janitorial, warehouse and logistics, staffing and hospitality industries.   While this list is not all-inclusive, it should rightfully be viewed as an indication of the industries that may be targeted for future compliance.
 
For the first time, the WHD identifies two types of joint employment relationships, horizontal and vertical joint employment.  Focusing on the relationship of the employers to each other, horizontal joint employment exists when a worker has employment relationships with two or more employers and the employers are sufficiently associated or related to the worker such that they jointly employee the worker.  In contrast, vertical joint employment exists when a worker has an employment relationship with one employer (e.g. a staffing agency, subcontractor, labor provider or other intermediary employer) and  “the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” The vertical joint employment analysis focuses on the economic realities of the working relationship between the worker and the employer.
 
 
Horizontal Joint Employment
 
To determine if a horizontal joint employment relationship exists, the AI lists the following nine factors to be analyzed:
 
  • who owns the potential joint employers;
  • 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 inter-mingled (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 employee;
  • 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.
Although this list of facts is not all-inclusive, the AI emphasizes that not all or even most of these facts must be present to establish joint employment.  Key to the horizontal joint employment analysis is its focus on the degree of association between the potential joint employers and the degree to which they share control of the worker.
 
Vertical Joint Employment
 
Vertical joint employment is most likely to occur when an employer has contracted with another employer or an intermediary employer to provide labor or provide other typical” employer functions” such as payroll or hiring.
 
In a vertical joint employment analysis, the threshold question is whether the intermediary employer is actually employed by the potential joint employer.  If the answer is yes, then a vertical joint employment analysis is not required.  However, if the answer is no, then the AI directs employers to proceed with the vertical joint employment analysis which under the FLSA and MSPA is an economic realities test.  Importantly, this analysis does not focus on the control of the employee, but instead gives each factor its own weight.  The seven factors are:
 
  • the extent to which the potential joint employer supervises work;
  • the extent to which the potential joint employer controls the conditions of employment and the workplace;
  • the permanency and duration of the relationship with the worker;
  • the extent to which the work performed by the worker is repetitive and rote; 
  • the extent to which the work performed by the worked is an integral part of the potential joint employer’s business;
  • the extent to which the tasks of the worker are performed on the premises of the potential joint employer; and 
  • whether the potential joint employer performs administrative functions typically performed by employers such as payroll and providing tool and equipment required for work.
While the economic realities factors vary slightly between jurisdictions, in the end the vertical joint employment analysis must address the “ultimate inquiry” of economic dependence.
 
Implications for Employers
 
This new guidance from the WHD is important because it helps employers understand how the DOL may approach potential joint employer scenarios when pursing wage and hour complaints.  The goal of the AI is to expand the concept of joint employment  so that employers  who benefit from the work performed by another entity’s workers can be equally responsible for wage and hour violations.  While undoubtedly the joint employment analysis is individualized and fact-driven, this new guidance will likely result in additional exposure of potential joint employers for workers hired, managed and/or paid by another affiliated entity.  Therefore, potential joint employers should make it a practice to inquire and become knowledgeable about the employment practices of their business partners, vendors and subcontractors.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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