DOL Proposes New Joint Employer Rule for Wage and Overtime Liability
The U.S. Department of Labor (“DOL”) has been very busy lately, proposing yet another new rule. On April 9, the Wage and Hour Division of the DOL issued proposed changes to the regulations providing guidance on how to determine joint employer status under the Fair Labor Standards Act (“FLSA”). These regulations have not been meaningfully revised since 1958.
What is Joint Employer Status?
Joint employers are jointly liable for an employee’s wages, including overtime pay. The issue of joint employer status often arises when trying to determine who can be held liable when an employee raises allegations of unpaid wages or overtime-pay violations. The situation usually involves franchisors, contractors, or a business that utilizes staffing firms. It is distinct from the proposed National Labor Relations Board rule establishing a test for joint employment under the National Labor Relations Act (discussed in a previous news digest article), which is expected to be finalized later this year.
Proposed Changes
Currently, multiple persons can be joint employers of an employee if they are ‘‘not completely disassociated’’ with respect to the employment of the employee. The new rule would eliminate this language, and replace it with a four-factor balancing test. To determine joint employer status under the FLSA, the DOL proposes to assess whether the potential joint employer:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
The proposal explains that additional factors may be used to determine joint employer status, but only if they are indicative of whether the potential joint employer is:
- exercising significant control over the terms and conditions of the employee’s work; or
- otherwise acting directly or indirectly in the interest of the employer in relation to the employee.
The proposal also explains that the employee’s “economic dependence” on the potential joint employer does not determine the potential joint employer’s liability under the FLSA, and identifies three examples of “economic dependence” factors that are not relevant to the joint employer analysis—including whether the employee:
- is in a specialty job or a job otherwise requiring special skill, initiative, judgment, or foresight;
- has the opportunity for profit or loss based on managerial skill; and
- invests in equipment or materials required for work or the employment of helpers.
The proposal further explains that a person’s business model (such as a franchise model), certain business practices (such as allowing an employer to operate a store on the person’s premises or participating in an association health or retirement plan), and certain business agreements (such as requiring an employer in a business contract to institute sexual harassment policies), do not make joint employer status more or less likely under the FLSA.
Examples
The DOL includes nine examples to further assist in clarifying joint employer status. The first example deals with two restaurants that are affiliated with the same nationwide franchise, but owned by different franchisees. The restaurants both employ an employee who works part time at each restaurant, but the restaurants do not coordinate with respect to the employee. Under those facts, they are not joint employers of the employee. If, however, the two restaurants had the same owner and coordinated hours and pay, they would be considered joint employers.
In another example, a company hires a janitorial services company to clean its building, reserving the right in their contract to control the employees’ conditions of employment. The company, however, does not hire or fire the employees, determine their rate or method of payment, or exercise control over their conditions of employment. The company is not a joint employer. Contrast that with a country club that contracts with a landscaping company and oversees the work of employees of the landscaping company by sporadically assigning them tasks, providing them with periodic instructions during each workday, and keeping intermittent records of their work. At the country club’s direction, the landscaping company agrees to terminate an individual worker for failure to follow a club official’s instructions. Under those facts, the club would be a joint employer.
The DOL also said that a company that requests workers on a daily basis from a staffing agency, determines each worker’s rate of pay, supervises their work, and controls their work schedules, would be considered a joint employer. On the other hand, a franchisor would not be a joint employer where it provides a franchisee with sample forms and documents for use in operating the franchise, including a sample employment application and employee handbook, but expressly contracts that the franchisee is solely responsible for day-to-day operations, including hiring and firing of employees, setting the rate and method of pay, maintaining records, and supervising and controlling conditions of employment.
Questions or Comments
More information about the proposed joint employer rule is available at www.dol.gov/whd/flsa/jointemployment2019.
The DOL is accepting comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA26. Comments must be submitted on or before June 10 to be considered.