Department of Labor Announces Final Rule on Joint Employer Liability

By Haley Morrison

On January 16, 2020, the United States Department of Labor (DOL) issued its Final Rule on Joint Employer Status under the Fair Labor Standards Act (FLSA). The new Rule, which will become effective March 16, 2020, is a departure from the legal interpretation adopted by the Obama Administration, and the interpretation by the National Labor Relations Board, both of which significantly expanded joint employer liability.

The FLSA requires that employers pay at least the federal minimum wage, plus any applicable overtime, to employees. In 1958, the DOL explained that more than one person or entity may be held liable, jointly and severally, to pay employee wages. The DOL explained that such circumstances arise where, for example, there is an arrangement to share the employee’s services; one employer acts in the interest of the other; or they share control of the employee. Until this Final Rule, the DOL had not meaningfully revised its interpretation in over 60 years.

The Final Rule continues to recognize two potential scenarios where an employee may have joint employers: (1) the employer hires an employee to work, but another individual or entity simultaneously benefits from that work, and/or (2) one employer employs the employee for one set of hours in a workweek, and another employer provides a separate set of hours in the same workweek.

For the first scenario, the Final Rule adopted a four-factor test, assessing whether the potential joint employer:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the employee’s employment records.

None of the factors is determinative; rather, it is a totality of the circumstances test, with the appropriate weight given to each factor depending on the circumstances. The Rule also notes that additional factors may be relevant to determining whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work.

The Final Rule also identified factors that are not relevant to the determination of FLSA joint employer status. For example, the DOL clarified that factors traditionally used to establish whether a worker is an independent contractor — such as their economic dependence on the joint employer — are not relevant. Other factors the DOL says are not relevant include: franchisor arrangements; contractual agreements requiring consistent quality of work, brand, or business reputation; the potential joint employer’s practice of providing the employer with a sample employee handbook or forms, and; allowing the employer to operate a business on the potential joint employer’s premises (e.g., ‘store-within-a-store’ arrangements).

The Final Rule did not make any significant changes to the second scenario listed above, meaning that if the employers are acting completely independently, each may disregard all work performed for the other employer in determining its obligations under the FLSA. So, for example, each employer may ignore the hours worked for the other employer during the workweek in determining whether the employer owes overtime.

Given the above, what should you do? If your company is sharing employee services, or contracting with another company for use of employees, have an attorney review that arrangement to identify and mitigate any new or ongoing risks.

This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have further questions on this topic, please email a member of our Labor & Employment Practice Group, or the attorney with whom you normally consult.

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