The United States Department of Labor (DOL) recently published a new rule and guidance on how to determine whether a “joint employer” exists under the Fair Labor Standards Act (“FLSA”). The stated purpose of the rule is to “promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.” 85 Fed. Reg. 2820 (Jan. 16, 2020). It became effective March 16, 2020.
Under the FLSA, two or more companies are sometimes liable for minimum wage or overtime violations because they meet the criteria of being “joint employers” over the employee(s) in question. The new rule comments on what these criteria should be and how the DOL interprets them. While the new rule confirms several well-established principles regarding the “joint employer” analysis, it also introduces some new parameters.
The First Scenario
In doing so, the DOL speaks to two common “joint employer” situations under the FLSA. See 29 C.F.R. § 791.2. “In the first joint employer scenario, the employee has an employer who suffers, permits, or otherwise employs the employee to work, see 29 U.S.C. 203(e)(1), (g), but another person simultaneously benefits from that work. The other person is the employee’s joint employer only if that person is acting directly or indirectly in the interest of the employer in relation to the employee. See 29 U.S.C. 203(d). In this situation, the following four factors are relevant to the determination. Those four factors are whether the other person:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
29 C.F.R. § 791.2. Further, for purposes of this section, the DOL defines “employment records” as “records, such as payroll records, that reflect, relate to, or otherwise record information pertaining to the hiring or firing, supervision and control of the work schedules or conditions of employment, or determining the rate and method of payment of the employee.”
However, the new rule indicates that certain records—such as “records maintained by the potential joint employer related to the employer’s compliance with” contractual agreements between them (e.g., “agreements with the employer requiring the employer to comply with specific legal obligations or to meet certain standards to protect the health or safety of its employees or the public” or “mandating that employers comply with their obligations under the FLSA”)—“do not make joint employer status more or less likely under the [FLSA].” 29 C.F.R. §§ 791.2(a)(2), (d)(3)-(4). Similarly, monitoring or enforcing such agreements against the employer does not make joint employer status more or less likely. Id. And requiring the inclusion of such standards, policies or procedures in an employee handbook does not make joint employer status more or less likely. Id. In addition to these (and other) new principles, the rule notes, “[s]atisfaction of the maintenance of employment records factor alone will not lead to a finding of joint employer status.” Id.
The new rule further clarifies that “[t]he potential joint employer must actually exercise – directly or indirectly – one or more of these indicia of control to be jointly liable under the [FLSA].” 29 C.F.R. § 791.2(a)(3)(i). The ability to exercise control is relevant, but does not alone demonstrate joint employer status without some actual exercise of control. Id. With regard to “indirect control,” it is “exercised by the potential joint employer through mandatory directions to another employer that directly controls the employee.” 29 C.F.R. § 791.2(a)(3)(ii). However, “the direct employer’s voluntary decision to grant the potential joint employer’s request, recommendation, or suggestion does not constitute indirect control that can demonstrate joint employer status” and neither do “[a]cts that incidentally impact the employee.” Id.
The new rule also notes that certain factors that courts have relied on to determine whether an employee has been misclassified as an independent contractor—“economic dependence” factors—are “not relevant for determining the potential joint employer’s liability under the [FLSA].” 29 C.F.R. § 791.2(c). These “economic dependence” factors include:
- Whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight;
- Whether the employee has the opportunity for profit or loss based on his or her managerial skill;
- Whether the employee invests in equipment or materials required for work or the employment of helpers; and
- The number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services.
29 C.F.R. § 791.2(c)(1)-(4). The rule also provides that operating as a franchisor or entering into a brand and supply agreement, or using a similar business model does not make joint employer status more likely under the [FLSA].” 29 C.F.R. § 791.2(d).
Nonetheless, consistent with decades of court decision, the new rule confirms “[n]o single factor is dispositive in determining joint employer status under the [FLSA]. Whether a person is a joint employer under the [FLSA] will depend on how all the facts in a particular case relate to these factors, and the appropriate weight to give each factor will vary depending on the circumstances of how that factor does or does not suggest control in the particular case.” 29 C.F.R. § 791.2(a)(3)(i). In addition, “[a]dditional factors may be relevant…but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.” 29 C.F.R. § 791.2(b).
The Second Scenario
According to the new rule, “[i]n the second scenario, one employer employs a worker for one set of hours in a workweek, and another employer employs the same worker for a separate set of hours in the same workweek. The jobs and the hours worked for each employer are separate, but if the employers are joint employers, both employers are jointly and severally liable for all of the hours the employee worked for them in the workweek.” 29 C.F.R. § 791.2(e)(1).
“In this second scenario, if the employers are acting independently of each other and are disassociated with respect to the employment of the employee, each employer may disregard all work performed by the employee for the other employer in determining its own responsibilities under the [FLSA].” 29 C.F.R. § 791.2(e)(2). “However, if the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining compliance with the [FLSA].” Id.
Generally, employers are “sufficiently associated” if:
- There is an arrangement between them to share the employee’s services;
- One employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or
- They share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.
29 C.F.R. § 791.2(e)(2)(i)-(iii). The determination under subsection (iii) “depends on all of the facts and circumstances.” Id. “Certain business relationships, for example, which have little to do with the employment of specific workers – such as sharing a vendor or being franchisees of the same franchisor – are alone insufficient to establish that two employers are sufficiently associated to be joint employers.” Id.
The new joint employer rule memorializes some familiar, and some new, principles applicable to determining joint employer status under the FLSA. The rule itself provides a series of examples to help illustrate how the DOL views the new rule applying in simplified factual scenarios. However, these examples make clear: the analysis of joint employer status is still fact-intensive. Only time will tell how courts will view, interpret and apply the new rule.