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Joint Employer Regulations Update Joint Employer Regulations Update

Joint Employer Regulations Update

In January, the U.S. Department of Labor announced a final rule to update the Regulations interpreting joint employer status under the Fair Labor Standards Act. As the DOL reported in its news release, the rules had not been meaningfully updated in over 60 years.

“Joint employment” describes circumstances where one business (the “direct” employer) assigns workers to another business (the “secondary” employer), which in turn, uses those same workers to carry out specific tasks. Frequently, the direct employer is a staffing agency or a franchise operator. The direct employer is responsible for how the workers are paid and provides their W‑2s. Even though the secondary employer does not determine wages, the joint employer doctrine holds that the secondary employer may be jointly liable if there are violations of the law. So, an employer with no connection to determining or paying wages could be liable for damages associated with overtime or underpayment of wages.

In the final rule, effective March 20, the DOL announced a four-factor balancing test for determining FLSA joint employer status. The analysis considers whether the alleged 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.

The DOL also analyzed the expected costs to employers for familiarizing themselves with the rule. According to the DOL, on average, it should take about one hour to review and understand the rule. The DOL assumes a compensation or benefits professional will need to read and understand the rule. The average wage for such persons is $32.65 an hour. When overhead costs are included, the resulting hourly burden is $53.22. In rough terms, the costs of regulatory familiarization across the country should be between $324 and $416 million, with retailers having the highest industry commitment, at about $57 million dollars.

The new rule does not change the fact that vulnerable employers should clearly define each potential employer’s responsibilities in a written agreement. These agreements need to be tailored to the specific nature of the tasks performed and the responsibilities of the respective parties. While the DOL’s analysis of the costs to be borne by management does not include this work, the failure to devote meaningful attention to the contractual language governing the relationships could be costly despite the more employer friendly language of the new rule. Therefore, if your business is susceptible to a joint employer analysis, let us know as we have the experience to craft contract clauses that are tailored to your business needs.

If you have questions about the new rule or joint employer status, please contact Jim Davidson or another member of our Labor, Employment and Immigration Group.

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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