UPDATE (10.5.2021): 2020 Rule fully rescinded effective October 5, 2021. 

Joint Employment

Are you considered a Joint Employer under the Fair Labor Standards Act (FLSA)? If you are, you may be joint and severally liable for another employer’s employees’ wages and overtime.

You are probably saying to yourself; how can that be? The answer lies in the broad definition of “Employer” under the FLSA. The FLSA defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee”.

Because the definition of “Employer” under the FLSA is rather broad and may include more than the employer of the employee, in 1958 the US Dept of Labor (“US DOL”) published regulation 29 CFR part 791, defining three scenarios when another person or entity may be considered a “Joint Employer” under the FLSA for wage and overtime claims.

Unfortunately, the US DOL’s 1958 clarification, still left many questions for businesses and attorneys unanswered.  It was not until January 12, 2020, over sixty years later, that the U.S. DOL adopted additional clarifications and rules which are designed to provide more transparency and notice to businesses as to whom is considered a “Joint Employer” under the FLSA.

Effective March 16, 2020, the US DOL will now use a four-factor balancing test derived from Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9^th Cir. 1983) to determine whether a person or entity is a Joint Employer under the FLSA for wage and overtime claims[1]. The four-factor includes whether a person or entity has actually exercised any of the following actions:

• Hires and fires employees;
• Supervises and controls employees’ work schedules or conditions of employment to a substantial degree;
• Determines employees’ rate and method of payment; and
• Maintains employment records.

The US DOL has stressed that no single factor is dispositive, and the appropriate weight shall be given to each factor depending on the circumstances.

However, there are some bright-line clarifications that have been made by the US DOL as to what is insufficient for a finding of a Joint Employer:

1. The employer must have actually exercised directly or indirectly one of the four factors in order to be even considered in the analysis of whether the person or entity is a Joint Employer. A simple reservation of authority in a contract or ability to do one of the four factors is insufficient by itself.
2. The satisfaction of the maintenance of employment records factor alone does not solely by itself lead to a Joint Employer status.
3. An employer’s voluntary decision to adopt or grant a request or recommendation from a potential joint employer does not constitute control of the employee. Nor does a contractual obligation to follow laws or implement policies geared toward compliance with the law. Such laws include, but are not limited to compliance with the FLSA, institute sexual harassment policies, requiring background checks, health and safety measures, and practices.
4. Inclusion of any recommended or requested policies from a potential Joint-Employer in an Employee Handbook or even the use of a handbook from the potential Joint Employer is likewise insufficient.
5. Likewise, requiring the employer contractually to maintain brand standards or quality is not a basis for finding Joint Employer status.
6. An employer offering an association health plan or a retirement plan to an employer or participation therein or in an apprenticeship program is not sufficient for a finding of Joint Employer.
7. Having a franchisor business model or similar business model by itself is insufficient.
8. Allowing an employer to operate a facility on the company’s grounds.
9. The economic dependence of an employee on a potential joint employer is not relevant for determining the potential liability as a Joint Employer. Examples of factors that are not relevant are: (1) Whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight; (2) Whether the employee has the opportunity for profit or loss based on his or her managerial skill; (3) whether the employee invests in equipment or materials required for work or the employment of helpers; and (4) The number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services.

The four factors test is a baseline for US DOL’s analysis and the US DOL cautions businesses and practitioners, that the US DOL may still consider additional factors relevant for determining Joint Employer status provided there is at least an “indicia” of whether the potential employer exercises a significant amount of control over the employee’s work and relationship with its employer based on the four factors.

In conclusion, businesses should still take precautions and seek legal advice in order to review any particular arrangement, operations, or agreement that it may have with a third party as it relates to employees in order to mitigate and/or possibly identify risk factors for being identified as Joint Employer.

These rules do not apply to organized labor unions.  The National Labor Relations Board and the Equal Employment Opportunity Commission are in the process of issuing separate rules relating to the definition of “Joint Employer” status under the National Labor Relations Act and relevant anti-discrimination laws.

UPDATE SINCE ARTICLE ORIGINALLY POSTED (2.16.2021):

It is important to note that on September 8, 2020, the U.S. District Court for the Southern District of New York, struck down significant portions of this new rule. The court found the rule’s “vertical” joint employer standard (Vertical joint employment arises when an entity uses any sort of intermediary employers, such as a staffing agency or subcontractor to provide labor) was “arbitrary and capricious”. To date, that portion of the U.S. DOL rule is still enjoined. It seems that under the Biden Administration, the National Labor Relations Board (NLRB) is expected to reverse the current restrictive joint employer standard and apply the test articulated in the 2015 decision of Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015), holding that a business shall be classified as a joint employer if it demonstrates indirect control or the ability to exert control over employees.

Our firm offers in-person and virtual consults if you have any questions or concerns about whether you are considered a Joint Employer or any employment, corporate, construction, commercial or family law issues, please feel free to call our office at 305-460-0145 or to schedule a consultation click here.

[1] The rule only addresses the definition of “Joint Employer” in reference to wage and overtime claims. It does not address the application of this balancing test to any other federal employment law analysis.