On April 1, 2019, the U.S. Department of Labor issued a notice of proposed rulemaking on joint employer status under the Fair Labor Standards Act. (FLSA). This proposed rulemaking seeks to revise the DOL’s regulation, 29 C.F.R. part 791, which was first published in 1958. According to the DOL, the proposed rule seeks to provide “a clear, four-factor balancing test, based on well-established precedent, for determining joint employer status.” The proposed rule also is intended to address uncertainty over what business practices may give rise to a joint employer relationship, and thus create liability under the FLSA.
The DOL has long recognized that, under the FLSA, an employee may have in addition to his or her employer, one or more “joint employers.” Under the FLSA, a joint employer is any additional individual or entity which is jointly and severally liable with the employer for the employee’s wages – including liability for overtime pay for any hours worked in excess of 40 in a work week. Under the DOL’s current regulation, multiple persons or entities can be joint employers of an employee if they are “not completely disassociated” with respect to the employment of the employee. There are two scenarios in which this standard has been applied: (1) where an employee works one set of hours in the work week for his or her employer, and that work simultaneously benefits another entity; and (2) where the employee works separate sets of hours for multiple employers in the same work week (i.e., separate sets of hours).
According to the DOL, the “not completely disassociated” standard continues to provide clear and useful guidance in the second scenario. However, the DOL believes that with regard to the first scenario, the current regulation does not provide adequate guidance for determining joint employer status under the FLSA. Because of the confusion and inconsistency created by the current regulation in those situations where an employee performs work for an employer, and that work simultaneously benefits another person (for example, contractors/subcontractors), under the current regulation the employer and the other person are almost never “completely disassociated.” Therefore, according to the DOL, the current regulation suggests that such situation “always results in joint liability.”
Through its proposed rule, the DOL seeks to address the foregoing issue by application of the following four-factor test. In the scenario where an employee works one set of hours in the work week for his or her employer, and that work simultaneously benefits another person or entity, the determination of whether joint employee status exists between the employer and the other entity would be based upon whether such entity actually exercises the power to: (1) hire and fire the employee; (2) supervise and control the employee’s work schedules or conditions of employment; (3) determine the employee’s rate and method of payment; and (4) maintain the employee’s employment records. Specific examples of the application of this test to various business situations are included in the proposed rule.
The DOL’s proposed rule also includes guidance on how to apply this multifactor test, and explains what additional factors should and should not be considered in that analysis. Additional factors may be considered, but only if they are indicative of whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work, or otherwise is acting directly or indirectly in the interest of the employer in relation to the employee. Moreover, a number of factors are no longer relevant to this analysis, including: whether the employee has “economic dependence” on the potential joint employer, or whether the potential joint employer merely has the ability, power, or contractual right to act in relation to the employee, but does not actually exercise that power.
The proposed rule also explains that certain business practices do not make joint employer status more or less likely. Those practices include, for example, providing a sample employee handbook to a franchisee; allowing an employer to operate a facility on one’s premises; jointly participating with an employer in an apprenticeship program; or offering an association health or retirement plan to the employer or participating in such a plan with the employer. The proposed rule also explains that certain business agreements, such as requiring an employer to institute workplace safety measures, wage floors, or sexual harassment policies, do not make joint employer status more or less likely. Also, under the proposed rule, a person’s business model (e.g., operating as a franchisor) does not make joint employer status more or less likely.
Again, the four-factor test is only intended to apply in situations where an employee will perform his or her work for an employer, and that work simultaneously benefits another person. That test does not apply where the employee works separate sets of hours for multiple employers in the same work week. In that circumstance, the DOL will continue to rely on the current “not completely disassociated” standard. Under that standard, the employer and a second entity will generally be considered to be sufficiently associated (and thus joint employers) if: (1) there is an arrangement between them to share the employee’s services; (2) one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) they share control of the employee directly or indirectly.
Once the DOL’s proposed rule is published in the Federal Register, the public will have 60 days to submit comments to the DOL for consideration. Employers should continue to monitor this rulemaking process, in anticipation of the issuance of a final rule by the DOL later this year.