RISK INSIGHT: Joint Employer Rules Adopted

On January 13, 2020, the Department of Labor (DOL) issued a final rule updating and revising its interpretation of joint employer status under the Fair Labor Standards Act (FLSA). The final rule essentially adopts the provisions of the proposed rule issued in April 2019 and provides additional guidance. The final rule is effective on March 16, 2020.

Under the FLSA, employers are liable to pay their employees minimum wage and overtime. “Employer” is defined under Section 3(d) as “any person acting directly or indirectly in the interest of the employer in relation to an employee”. Employees may have two or more employers who are jointly liable for wages.

The final rule provides the following guidance for two potential joint employer situations.

Situation 1

Other employer(s) benefits from an employee’s work (vertical integration):

In these situations, the final rule adopts a 4-factor balancing test to determine if the other employer who is benefiting from the employees work is a joint employer. The four factors the DOL will consider when determining if the employer/person benefits are whether they:

  • Hire or fire employees
  • Supervise and control the employee’s work or conditions of employment to a substantial degree
  • Determine employee’s rate and method of payment
  • Maintain employee’s records

A single factor will not determine joint employer status and the factors should be applied uniformly with the particular circumstances in mind. Also, the other person/employer must actually exercise control over one or more of these factors.

Situation 2:

Multiple employers permit or allow employee to work separate sets of hours in same workweek (horizontal integration):

Multiple employers are joint employers if they are sufficiently associated with respect to the employment of the employee. If these employers are joint employers, all hours must be aggregated for compliance purposes.

The rule also provides guidance on situations that do not necessarily make joint employer status more likely. These situations include:

  • Franchise business model, brand and supply business model or other business models
  • Contractual agreements between persons/employers requiring the employer to comply with specific legal obligations or to meet certain standards to protect the health and safety of employee
  • Monitoring and enforcement of such contractual agreements against the employer
  • Contractual agreements requiring quality control
  • Providing a sample handbook
  • “Store within a store” arrangements
  • Providing an association health or retirement plan
  • Joint participation in an apprenticeship program

Although these situations do not make a joint employer status more likely, the traditional 4-factor test should be applied based on the facts and circumstances, along with a determination as to whether the person or employer has direct or indirect control.

Takeaway:

This clarification is important for organizations which leverage joint employer status as part of their business model. If you have questions about how this rule may apply to your business, we strongly encourage you to work with your legal counsel.

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