United States: Labor Department Announces Plan To Find Joint Employment — In All Directions

Last Updated: February 1 2016
Article by Todd Lebowitz

When I get lost (which is often, say my kids), I turn to a map. Fortunately, I always have my iPhone on me, so the Maps app can generally get me where I am going.

The Wage and Hour Division needs no map to find where it wants to go. In a 15-page release dated January 20, 2016, Administrator David Weil explains how the Department of Labor (DOL) can find joint employment "horizontally" and "vertically." And they will find joint employment ... "expansively." Weil writes that the DOL will interpret the definition of joint employment to be "as broad as possible." They can find it in a house. They can find it on a mouse.

The increased use of nonemployee workers has tested the creativity of government agencies. Tasked with applying 1930s-era wage laws in a modern postindustrial economy, the DOL is now making stuff up.

In his first formal Administrator's Interpretation of 2016, Administrator Weil touts the concepts of "horizontal joint employment" and "vertical joint employment." Both concepts can be used, he explains, to find a joint employment relationship, subjecting an unsuspecting company to the Fair Labor Standards Act and all overtime and minimum wage laws, even for workers over whom the company has little or no control.

Here's how it works. Horizontal joint employment, despite its name, has nothing to do with getting caught sleeping on the job while working at a medical marijuana dispensary. Instead, horizontal joint employment exists when an employee works for two different companies but the companies are related. For example, suppose LeBron sells tickets for a basketball team in Cleveland for 25 hours a week but also works 25 hours a week across the street at the Horseshoe Casino. Suppose the basketball team and the casino are both owned by a mortgage mogul from Detroit. If the companies are sufficiently related through common ownership or common management, LeBron's 50 hours of work per week are aggregated, and he is entitled to 40 hours at his regular rate plus 10 hours per week of overtime pay at time and a half. Who knew?

Vertical joint employment may be found in a staffing agency or contractor relationship, where a worker is clearly employed by one company (the staffing agency or contractor) but provides services for the benefit of another. It is here that Administrator Weil makes an assertion that caused me to double underline, highlight, and draw exclamation points in both margins. He opines that a "threshold question in a vertical joint employment case" is whether a contractor can be deemed an employee of the potential joint employer. In other words, is there an independent contractor who has been misclassified? If the answer is yes and that contractor has hired its own workers (i.e., subcontractors) to help, then all of the contractor's workers are also deemed employees of the top-level company. Whoa. That can't possibly mean what it sounds like, can it?

Weil provides this example to illustrate his absurd and overreaching point. "If a drywall subcontractor is not actually an independent contractor but is an employee of the higher-tier contractor, then all of the drywall subcontractor's workers are also employees of the higher-tier subcontractor."

Remember, this analysis (contractor as opposed to employee) is all performed under the Fair Labor Standards Act's employment test, which is the most lenient, pro-employee test for determining whether someone is an employee or contractor out of the multitude of standards covering different federal laws. Under the FLSA, a worker is deemed an employee if the worker is economically reliant on the company that provides the work, regardless of the level of control the company exerts over the worker. In other words, the drywall contractor who gets most of his work from Weil Company can be deemed Weil Company's employee, even if the drywall contractor sets his own hours, hires his own helpers, picks out his own stylish overalls (denim embossed with rhinestones!), and pays his own expenses. If the drywall contractor is deemed to be Weil Company's employee under the FLSA, then all of the drywall company's workers (whether subcontractors or employees) are also deemed Weil Company's employees, and Weil Company is jointly and severally liable for making sure that all of the drywall workers are paid overtime and minimum wage.

On the other hand, if the drywall contractor is not an employee, then a vertical joint employment analysis is applied anyway, to determine whether the contractor's workers are economically reliant on the entity that retained the contractor. If so, the contractor's workers can be deemed joint employees of both the contractor and the company that retained the contractor, even if the contractor is no one's employee. Confused? Good. That's the point. When 1930s industrial wage and hour laws are applied to the modern economy, new rules and terms have to be invented on the fly to try to retroactively make these laws make sense. And they still don't make sense.

As Dr. Seuss once wrote, "Think left and think right and think low and think high. Oh, the thinks you can think up if only you try." (Dog-eared and highlighted copies of Oh, the Thinks You Can Think were reportedly found in Administrator Weil's trunk at press time.)

In any event, the Administrator's Interpretation sets forth a list of factors to be considered when assessing the potential for horizontal joint employment and vertical joint employment. The factors are different (of course they are), since the focus of the horizontal test is the relationship between the two employers, while the focus of the vertical test is the reliance of the worker upon the top-level beneficiary of the work.

The key takeaway here is that the DOL wants to find employment relationships. Where such relationships do not seem to exist, newly created standards can make them exist. It is so because we say it is so.

Companies that benefit from nonemployee labor, whether directly or indirectly, should carefully assess their relationships under these newly articulated standards. Those companies deemed to be joint employers can find themselves liable for payroll mistakes made by contractors over whom they exert little or no control.

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.

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