On January 16, the U.S. Department of Labor (“DOL”) published a final rule updating the regulations interpreting joint employer status under the Fair Labor Standards Act (“FLSA”).  The final rule is similar to the proposed rule issued last April.

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 soon.

Final Rule

The final rule states that “when an employee performs work for the employer that simultaneously benefits another person, that person will be considered a joint employer when that person is acting directly or indirectly in the interest of the employer in relation to the employee.”  The final rule sets forth a four-factor balancing test for determining FLSA joint employer status in situations where an employee performs work for one employer that also benefits another entity.  The balancing test looks at 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.

The final rule provides guidance on how to apply this balancing test.  For example, to be a joint employer, the other person must actually exercise—directly or indirectly—one or more of the four control factors.  No single factor is dispositive in determining joint employer status, and the appropriate weight to give each factor will vary depending on the circumstances.  Notably, however, satisfaction of the fourth factor alone does not demonstrate joint employer status.

The final rule also:

• Provides that additional factors may be used to determine joint employer status, but only if they are indicative of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.
• States that factors that assess an employee’s economic dependence on the potential joint employer are not relevant to the analysis.
• Identifies additional business models (including the franchise business model), business practices, and contractual agreements that do not make joint employer status more or less likely.
• Provides more examples of how the rule would apply in various circumstances.

The DOL also published a Fact Sheet about the final rule.  The final rule will be effective on March 16, 2020.