Department of Labor Expands Its Joint Employment Standard

The Department of Labor (DOL) recently issued an Administrative Interpretation letter that offers an expansive interpretation of “joint employment” under federal wage and hours laws. The stated goal of the letter is to provide “guidance on identifying those scenarios in which two or more employers jointly employ an employee and are thus jointly liable for compliance” under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). In practice, however, the letter provides one of the broadest definitions of joint employment and increases the scenarios under which two businesses may be deemed joint employers.

With this letter, the DOL joins the growing list of government agencies to recently expand their definitions of joint employment. Less than six months ago, the National Labor Relations Board’s ruling in Browning-Ferris overturned decades of labor policy and created a new, broader joint employer standard. (The Browning-Ferris decision, which we covered in our September 2015 issue of Employer Advisor, is being appealed to the U.S. Court of Appeals.)

The DOL’s interpretive letter, however, lays out one of the most expansive definitions of joint employment to date—broader than the common law test, the OSHA test, and even the NLRB’s new Browning-Ferris test—and “ensures that the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible.” Businesses in the construction, staffing, janitorial, warehouse, restaurant, and hospitality industries, as well as any business that provides or uses contract labor, are particularly likely to be impacted by this letter.

The DOL’s Joint Employment Interpretation Letter

Under the FLSA, an employee can be deemed to have more than one employer for the work he or she performs. Whether an employee has more than one employer is important in determining an employers’ obligations to the employee.

The DOL’s interpretive letter addresses two types of joint employment, which it calls “horizontal joint employment” and “vertical joint employment.”

Horizontal joint employment exists where the employee has employment relationships with two technically separate, but associated or related businesses. One example includes separate restaurants that share economic ties and have the same managers.

The horizontal joint employment analysis focuses on the relationship between the companies. The interpretive letter lists several factors that may used to considered the degree of association between potential joint employers:

• Who owns the potential joint employers;
• Do the potential joint employers have any overlapping officers, directors, executives, or managers;
• Do the potential joint employers share control over operations or administration;
• Are the potential joint employers’ operations intermingled;
• Does one potential joint employer supervise the work of the other;
• Do the potential joint employers share supervisory authority for the employee;
• Do the potential joint employers treat the employees as a pool of employees available to both of them;
• Do the potential joint employers share clients or customers; and
• Are there any agreements between the potential joint employers.

This list is not exhaustive, and the letter explains that all (or even most) of these factors need not be present for joint employment to exist. Importantly, the letter notes that joint employment does not exist if the employers “are acting entirely independently of each other and are completely disassociated” with respect to an employee who works for both of them.

Vertical joint employment exists when an employee is technically employed by one company, but the employee is economically dependent on, and thus employed by, another company associated with the work. This situation commonly occurs with staffing agencies, subcontractors and other labor providers. For example, a construction worker who works for a subcontractor may also be deemed an employee of the general contractor; the general contractor, which typically contracts with the subcontractor to receive the employee’s labor, would be the potential joint employer.

The vertical joint employment analysis focuses on the relationships between the employee and the businesses he or she provides work to. The inquiry looks to the “economic realities” of the relationships to determine whether the employee is also “employed” by the potential joint employer.

The interpretive letter lists seven factors used to consider:

• Who directs, controls, or supervises the work performed;
• Who controls the conditions of employment;
• The permanency and duration of the employment relationship;
• The repetitive and rote nature of the work;
• Whether the employee is integral to the business;
• Where the work is performed—i.e., is it performed on the premises of the potential joint employer; and
• Does the potential joint employer perform administrative functions commonly performed by employers (e.g., payroll, workers’ compensation insurance).

Joint Employment Could Have Significant Consequences for Employer

If two or more companies are found to be “joint employers” of an employee, “the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due.” Additionally, joint employment may be considered to achieve statutory coverage, which means a company that may not ordinarily be subject to the FLSA could be pulled within its ambit via a joint employment relationship.

Importantly, if multiple companies are deemed joint employers, all of the joint employers are jointly and severally liable for any FLSA liability. In other words, each joint employer is individually responsible for the entire amount of any damages or unpaid wages. This may be of great consequence to small companies doing business with larger ones because if “one employer cannot pay the wages because of bankruptcy or other reasons, then the other employer must pay the entire amount of wages; the law does not assign a proportional amount to each employer.”

Virtually All Industries Could Be Impacted by DOL Letter

Companies that should particularly take note of the DOL letter are any that have employees who work for multiple businesses that are associated or related in some way; as well as companies that work for another company or provide labor for another company, such as contractors and staffing agencies. The interpretive letter specifically calls out the construction, staffing, janitorial, warehouse and logistics, restaurant, agricultural, and hospitality industries. Due to the far-reaching scope of the letter, however, nearly every business could be affected by the DOL’s expanded joint employment test.

If you would like assistance determining whether your business or your employees may be subject to a joint employment situation, or if you have questions about anything in this article, please contact Attorney Andrew Chase at achase@seatonlaw.com or any of the other Peters, Revnew, Kappenman & Anderson, P.A. attorneys.