Earlier this week, the U.S. Department of Labor (DOL) published a Final Rule on joint employer status under the Fair Labor Standards Act (FLSA). The much-anticipated rule will go into effect on March 16, 2020.
The FLSA requires covered employers to comply with federal minimum wage and overtime provisions. The Act defines employers as including “any person acting directly or indirectly in the interest of an employer in relation to an employee." Under this definition, an employee could potentially have, in addition to his or her employer of record, one or more “joint employers” who are jointly and severally liable for wages and overtime.
The Final Rule clarifies that when an employee has an employer who suffers, permits, or otherwise employs an employee to work, and another person simultaneously benefits from that work, the person simultaneously benefiting from the work is a joint employer “only if that person is acting directly or indirectly in the interest of the employer in relation to the employee." The Final Rule adopts a four-factor balancing test to determine whether an individual or entity qualifies as a joint employer in this situation. Specifically:
- Does the potential joint employer hire or fire the employee?
- Does the potential joint employer supervise or control the employee’s work schedule or conditions of employment to a substantial degree?
- Does the potential joint employer determine the employee’s rate and method of payment?
- Does the potential joint employer maintain the employee’s employment records?
As with all balancing tests, no single factor is dispositive in determining joint employer status. For example, maintaining an employee’s employment records alone may not necessarily lead to a finding of joint employer status. However, a person must exercise actual control, not reserve optional control, to establish joint employment.
The Final Rule also identifies factors that are not relevant to the joint employer analysis (such as the employee's economic dependence on the potential joint employer), as well as factors that do not make joint employer status more or less likely. These factors include:
- Organizing as a franchisor or entering into a brand and supply agreement (or using a similar business model);
- The potential joint employer’s contractual agreements with the employer requiring the employer to comply with specific legal obligations to meet certain standards to protect the health or safety of its employees or the public, and the monitoring and enforcement thereof;
- The potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation, and the monitoring and enforcement thereof; and
- The potential joint employer’s practice of providing a sample employee handbook, or other forms, to the employer; allowing the employer to operate a business on its premises (including a “store within a store” arrangement); offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer; jointly participating in an apprenticeship program with the employer; or any other similar business practice.
The Final Rule provides clarity to employers who could potentially face joint liability for employee wages and overtime. However, it does not eliminate or reduce the risks of joint employer status under the FLSA. Given this, employers should continue to be mindful of their relationships with others’ employees, particularly under the new four-factor balancing test.