United States: U.S. Department Of Labor Issues New Guidance On Joint Employment

It is no surprise that businesses often struggle with categorizing workers as employees versus independent contractors.  The U.S. Department of Labor's ("USDOL") latest  guidance highlights a similar challenge businesses face, but may overlook, especially those using staffing agencies  or hire temporary workers to supplement their workforces: the issue of joint employment.  On January 20, 2016, the Wage and Hour Division of the USDOL issued new guidance on joint employment making it clear that the Department takes this issue seriously and will be working to ensure that all responsible employers are aware of their obligations.  For the full text of the Department's Interpretation see Administrator's Interpretation No. 2016-1 available at http://www.dol.gov/whd/flsa/Joint_Employment_AI.htm.

The USDOL identified common scenarios in which two or more employers jointly employ an employee and are thus jointly liable for compliance with the Fair Labor Standards Act ("FLSA") and the Migrant and Seasonal Agricultural Worker Protection Act ("MSPA").  Joint employer issues often arise where an employee works for two employers who are associated or related in some way with respect to the employee or where the employer is an intermediary or otherwise provides labor to another employer.  The Interpretation pulls together all the relevant statutory provisions, regulations and case law to provide comprehensive guidance on joint employment under the FLSA and MSPA so that employers can properly analyze a potential joint employment scenario.

So when does a joint employment relationship exist?  Unlike the common law control test which focuses on the amount of control exercised by the employer over the worker to determine if the worker is an employee, under the FLSA and MSPA a much broader "suffer or permit" test is used. Under this broader definition, a worker can be an employee even where the employer exercises little or no control over the worker.  Thus, the test for joint employment under the FLSA and MSPA is different, and more encompassing, than the test under other labor statutes.

There are two types of joint employment: horizontal and vertical.  The structure and nature of the relationship at issue determines whether a particular case is analyzed under horizontal or vertical joint employment (or both).  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.  The focus is on the relationship between the employers.  Common examples include separate restaurants that share economic ties and have the same managers and waitresses working in both restaurants.  Another example is where a nurse works at one nursing home part-time and another related nursing home part-time during the same week.  If the nursing homes are joint employers, the nurses' hours for the week are added together as a single employment relationship.

The following facts may be relevant when analyzing the degree of association between potential horizontal joint employers:

  • 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)?
  • Do the potential joint employers have any overlapping officers, directors, executives, or managers?
  • Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)?
  • Are the potential joint employers' operations 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)?
  • 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?
  • Are there any agreements between the potential joint employers?

On the other hand, "vertical" joint employment may exist where an employee of one employer (referred to as an "intermediary employer") is also economically dependent on another employer (the "potential joint employer").  The potential joint employer typically has contracted with the intermediary employer to provide it with labor and/or perform for it some employer functions, like hiring and payroll.  There is often an admitted employment relationship between the employee and the intermediary employer, but the question becomes whether the employee's work is also for the benefit of the potential joint employer.  Vertical joint employment can arise where a construction worker who works for a subcontractor is also employed by the general contractor, where a farmworker who works for a farm labor contractor is also employed by the grower, or where nurses are placed at a hospital by staffing agencies.  Unlike horizontal joint employment where the focus is between the employers, vertical joint employment focuses on the economic realities of the relationship between the worker and potential joint employer (i.e. vertical joint employment focuses on the economic dependence  of the worker on the general contractor, rather than the relationship between the subcontractor and the general contractor).

The MSPA regulation describes seven economic realities factors in the context of a farm labor contractor acting as an intermediary employer for a grower and is useful to analyze other vertical joint employment scenarios.  It is important to note that the economic realities factors are applied in varying ways depending on the court, but the ultimate focuses is always on determining economic dependence.  The seven MSPA factors are:

  • 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;
  • 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;
  • The permanency and duration of the relationship by the employee with the potential joint employer;
  • 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;
  • Whether the employee's work is an integral part of the potential joint employer's business;
  • Whether the employee's performance of the work is performed on premises owned or controlled by the potential joint employer;
  • The extent that the potential joint employer performs administrative functions for the employee commonly performed by employers.

In sum, joint employment has become more common with today's increasing trend toward businesses sharing employees, or using third party management companies, independent contractors, staffing agencies or labor providers.  In view of these evolving employment scenarios which  depart from the traditional employment  situation, the USDOL is scrutinizing these relationships more carefully.  The Interpretation makes clear that joint employment will be defined expansively and thus the scope of employment relationships subject to the protections of the FLSA and MSPA is broad.  Why does this matter?  Whether an employee has one or more employer is important in determining both the employee's rights and the employer's obligations.  In cases where joint employment is established, the employee's work for the joint employers during the workweek is considered as one employment and the joint employers are jointly and severally liable for compliance, including paying overtime compensation for all hours worked over 40 during the workweek.  Therefore, it is in a business' best interest to become familiar with this Guidance.

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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