On January 20, 2016, the U.S. Department of Labor's Wage and
Hour Division issued Administrator's Interpretation No. 2016-1,
which the agency describes as guidance for employers on joint
employment under the Fair Labor Standards Act and Migrant and
Seasonal Agricultural Worker Protection Act. In a blog post
accompanying the new guidance, Dr. David Weil, administrator of the
Wage and Hour Division, notes that joint employment "has been
a major focus for the Wage and Hour Division in recent years"
and the agency "considers joint employment in hundreds of
investigations every year." Still, according to Dr. Weil, the
new guidance "reflects existing policy." Thus, while the
DOL's apparent focus on its enforcement agenda may be a cause
for some concern, the guidance also makes clear – at least in
the DOL's view – that the joint employer rules of the
FLSA and MSPA remain unchanged.
The new guidance emphasizes the DOL's view that "[t]he
scope of employment relationships subject to the protections of the
FLSA and MPSA is broad," with the two statutes analyzed in
tandem because they share an identical definition of the term
"employ." That is, the DOL contends that the concepts of
employment and joint employment under the FLSA and MSPA are notably
broader than the common law concepts of employment and joint
employment, which look to the amount of control that an employer
exercises over an employee.
Thus, in the DOL's view, the test for joint employment under
the FLSA and MSPA is different than the test under other labor
statutes, such as the National Labor Relations Act, 29 U.S.C. 151
et seq., and the Occupational Safety and Health Act, 29 U.S.C. 651
et seq.
The guidance then discusses two primary types of joint employment
relationships: "horizontal" and "vertical."
Horizontal Joint Employment
Horizontal joint employment focuses on the relationship between
the two potential joint employers. According to the guidance,
horizontal joint employment "may exist when two (or more)
employers each separately employ an employee and are sufficiently
associated with or related to each other with respect to the
employee." In this type of joint employment, "there is
typically an established or admitted employment relationship
between the employee and each of the employers, and often the
employee performs separate work or works separate hours for each
employer."
Examples of horizontal joint employment, according to the guidance,
may include separate restaurants that share economic ties and have
the same manager controlling both restaurants or home health care
providers that share staff and have common management. The guidance
discusses the legal test for determining whether a horizontal joint
employment relationship exists, which focuses on the degree of
association between the putative joint employer, and states that
the following may be relevant when analyzing this issue:
- who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
- whether the potential joint employers have any overlapping officers, directors, executives, or managers;
- whether the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
- if the potential joint employers' operations are inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for?);
- if one potential joint employer supervises the work of the other;
- whether the potential joint employers share supervisory authority for the employee;
- whether the potential joint employers treat the employees as a pool of employees available to both of them;
- if the potential joint employers share clients or customers; and
- whether there are any agreements between the potential joint employers.
Vertical Joint Employment
Vertical joint employment, by contrast, focuses on the
employee's relationship with the potential joint employer and
whether that employer jointly employs the employee. According to
the guidance, such a relationship may exist where the employee,
"with regard to the work performed for the intermediary
employer, [is] economically dependent on another employer." By
way of example, the guidance lists a construction worker who works
for a subcontractor but is jointly employed by a general contractor
as well as a farmworker who works for a farm labor contractor but
is jointly employed by the grower.
The guidance, in its discussion of the legal test to determine
whether a vertical joint employment relationship exists, reflects
yet again the DOL's position that joint employment should be
defined as broadly as possible. The DOL takes the position that an
"economic realities" test must apply, and the analysis
"cannot focus only on control" (such as the power to hire
and fire, supervision and control of conditions or work schedules,
determination of rate and method of pay, and maintenance of
employment records). Rather, the "core question" is
whether the employee is economically dependent on the potential
joint employer who, via an arrangement with the intermediary
employer, is benefitting from the work. The guidance notes that the
following seven factors are probative of the question:
Directing, Controlling, or Supervising the Work
Performed. To the extent that the work performed by the
employee is controlled or supervised by the potential joint
employer beyond a reasonable degree of contract performance
oversight, such control suggests that the employee is economically
dependent on the potential joint employer.
Controlling Employment Conditions. To the extent
that the potential joint employer has the power to hire or fire the
employee, modify employment conditions, or determine the rate or
method of pay, such control indicates that the employee is
economically dependent on the potential joint employer.
Permanency and Duration of Relationship. An
indefinite, permanent, full-time, or long-term relationship by the
employee with the potential joint employer suggests economic
dependence. This factor should be considered in the context of the
particular industry at issue.
Repetitive and Rote Nature of Work. To the extent
that the employee's work for the potential joint employer is
repetitive and rote, is relatively unskilled, and/or requires
little or no training, those facts indicate that the employee is
economically dependent on the potential joint employer.
Integral to Business. If the employee's work
is an integral part of the potential joint employer's business,
that fact indicates that the employee is economically dependent on
the potential joint employer.
Work Performed on Premises. The employee's
performance of the work on premises owned or controlled by the
potential joint employer indicates that the employee is
economically dependent on the potential joint employer.
Performing Administrative Functions Commonly Performed by
Employers. To the extent that the potential joint employer
performs administrative functions for the employee, such as
handling payroll, providing workers' compensation insurance,
providing necessary facilities and safety equipment, housing, or
transportation, or providing tools and materials required for the
work, those facts indicate economic dependence by the employee on
the potential joint employer.
The economic realities factors applied vary somewhat depending on
the court, but any formulation must address the "ultimate
inquiry" of economic dependence.
The guidance explicitly rejects court decisions – including a
decision of the U.S. Court of Appeals for the Third Circuit –
analyzing only on a potential joint employer's control over the
worker in question, rather than the full picture of the economic
relationship among the parties. Not only that, the guidance
indicates that a specific "economic realities" test from
the MSPA regulations can and should be applied to claims under the
FLSA. The test from the MSPA regulations, although specific to
determining joint employment status in the "context of a farm
labor contractor acting as an intermediary employer for a
grower," can serve as "useful guidance" to determine
vertical joint employment in FLSA cases. The guidance explains that
the MSPA regulations can be applied beyond the particular
circumstances of the MSPA because they "are probative of the
core question of whether an employee is economically dependent on
the potential joint employer who . . . is benefitting from the
work."
Significance for Employers
The timing of the joint employment guidance, issued near the
first of the year and only six months after the DOL issued Administrator's Interpretation No. 2015-1,
which focused on the classification of "employees" under
the FLSA, further demonstrates the DOL's intent to showcase its
activism with respect to wage and hour compliance. The guidance and
accompanying materials, including the agency's announcement
directing readers to a new DOL webpage on joint employment issues,
contain numerous references to the need to hold "all
responsible employers" accountable.
The agency also signals where its enforcement efforts may be
directed in the future. Dr. Weil's blog post lists a number of
industries, including construction, agricultural, janitorial,
distribution and logistics, hospitality, and staffing, where it is
more common for employees to be shared or there are third-party
management companies.
The guidance makes clear that the agency is well-aware of practical
as well as legal considerations with respect to joint employment:
"[W]here joint employment exists, one employer may be larger
and more established, with a greater ability to implement policy or
systematic changes to ensure compliance." "Thus," it
continues, "WHD may consider joint employment to achieve
statutory coverage, financial recovery, and future
compliance." In other words, the DOL should be expected to
factor a number of practical considerations into its
investigations, including – and perhaps foremost – the
ability to pay large monetary settlements or judgments. As the
guidance notes, joint employers are jointly and severally liable
under both statutes.
Finally, in a footnote, the agency exhibits its skepticism of
contractual provisions that purport to disclaim joint employer
liability. Many employers, especially those that use staffing
agencies or similar third-party entities, regularly include such
terms in their contracts. As the guidance highlights, these clauses
may face special scrutiny and are "not relevant to the
economic realities of the working relationship." These clauses
are often drafted to state that an employer does not direct or
control workers provided by a third party. However, in light of the
DOL's rejection of the legal tests that look exclusively or
primarily to a putative joint employer's control over the
worker, companies cannot rely solely on such contract terms to
mitigate potential liability. Instead, employers should carefully
analyze how these relationships work in practice.
Overall, the guidance is useful insofar as it clearly states the
DOL's stance on how to determine joint employment status.
However, given the complexity of joint employment doctrine across
the spectrum of federal and state employment law, it is unlikely
that the guidance will become a primary resource for large and
sophisticated employers. Rather, the guidance may best be viewed as
further evidence of the DOL's intent to cast its enforcement
net as widely as possible. As Dr. Weil stated in his blog post, the
agency plans to "continue educating employers about their
responsibilities," perhaps indicating that employers should
expect additional guidance on other topics to be published in the
near future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.