DOL Issues Final Rule on Joint Employer Status Under FLSA

The U.S. Department of Labor (DOL) recently announced the final rule concerning joint employment under the Fair Labor Standards Act (FLSA). The effective date was March 16, 2020.

Four-factor Test

The FLSA established the 40-hour workweek, minimum wage, and minimum overtime pay guidelines. Joint employment can mean two employers are considered as one, and therefore, overtime rules would combine the working hours for one employee from both employers. In the joint employer scenario, when another employer is benefiting from the employee’s work, the DOL uses a four-factor balancing test derived from Bonnette v. California Health & Welfare Agency to assess whether the other entity:

• Hires or fires the employee;
• Supervises and controls her work schedule or employment conditions to a substantial degree;
• Determines her payment rate and method; and
• Maintains her employment records.

No single factor is dispositive in determining joint-employer status, and the appropriate weight to give each factor will vary depending on the circumstances. Satisfying the maintenance-of-employment-records factor alone, however, doesn’t demonstrate joint employer status.

Employers generally will be sufficiently associated if:

• There’s an arrangement between them to share the employee’s services;
• One employer is acting directly or indirectly in the interest of the other in relation to the employee; or
• They share control of the employee, directly or indirectly, by reason of the fact that one controls, is controlled by, or is under common control with the other employer.

Again, such a determination depends on all the facts and circumstances.

Nonmaterial Factors

Certain business relationships that have little to do with the employment of specific workers are not enough to establish that two employers are sufficiently associated to be joint employers. Examples include sharing a vendor or being franchisees of the same franchisor. Accordingly, the final rule includes a number of factors that don’t make a joint employment relationship more or less likely:

• The employee’s economic dependence on the potential joint employer;
• If the company is operating as a franchisor, entering into a brand and supply agreement, or using a similar business model;
• The presence of contractual agreements the potential joint employer has that would require it to meet legal obligations or standards to protect the health or safety of employees or the general public;
• Requiring, monitoring, and enforcing other businesses’ compliance with quality-control standards to ensure the consistent quality of a work product, brand, or business reputation; and
• Practices of providing sample handbooks or other forms to the employer, allowing an employer to operate a facility on its premises, offering an association health or retirement plan to (or participating in such a plan with) the employer, or jointly participating with an employer in an apprenticeship program.

The final rule includes 11 helpful examples to guide employers in determining whether a joint employment relationship may exist, starting at page 101 of the linked pdf: https://www.dol.gov/sites/dolgov/files/WHD/publications/flsa-fr-joint-employer.pdf.

Bottom Line

A finding of joint employment can be costly because it can create liability for unpaid overtime when an employee works a combined total of more than 40 hours for both employers. There may be other instances in which joint employment outside the FLSA can create liability, such as worker’s compensation liability. Employers, including public agencies, should carefully consider the new rule and evaluate the potential for a joint employment finding when an employee works for more than one entity and they have some overlapping connections, such as a staffing agency, subcontractors, or franchises. You also should consider joint employment in the context of worker’s comp.

This article, slightly modified to note recent updates, was featured in the March issue of the Great Lakes Employment Law Letter and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.