United States: DOL Issues New Guidelines On Joint Employment

Last Updated: February 11 2016
Article by Joel S. Barras, Mark D. Temple, Mark S. Goldstein and Megan J. Pence

The past few weeks have brought us a flurry of activity from federal agencies poised to re-shape the employment landscape, from upending traditional notions of the employment relationship to re-defining what it means to engage in unlawful retaliation. Now, as the dust settles, we will take a look at each of these administrative actions in this four-part series.

In this first installment, we discuss an Administrator's Interpretation (Interpretation) issued by the U.S. Department of Labor (DOL) concerning joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The Interpretation is perhaps most impactful for companies that rely on third-party contractors, such as staffing agencies, to regularly provide services outside of the companies' core businesses. According to the DOL, such companies are likely no longer shielded from employment-related liability merely by their use of third-party contractors, but instead are joint employers liable for workplace violations as if they were the primary employer.

What is Joint Employment?

Initially, the Interpretation notes that the FLSA and the MSPA use the same definition of "employ" – "to suffer or permit to work" – and are both applicable to joint employers. The Interpretation further notes that the statutes' definitions of "employ" and "joint employment" are broader than the traditional common law concepts, and are meant to apply as broadly as possible. Critically, when two employers are classified as "joint employers," both employers are jointly and severally liable to the employee for compliance with the FLSA and MSPA. Also, the hours an employee works for both employers during the work week are aggregated, and overtime pay is calculated from that aggregated number.

Against this backdrop, the Interpretation identifies where joint employment is most likely to exist, dividing its analysis between horizontal and vertical joint employment scenarios.

Horizontal Joint Employment

According to the DOL, "horizontal joint employment" typically exists where an employee has two or more technically separate, but ultimately related or associated, employers. As an example, the Interpretation refers to a nurse who works for 25 hours at one nursing home and, in the same week, works another 25 hours at a different nursing home. If the nursing homes are joint employers – for example, if they are owned or operated by the same company, they share managers, and there is a pool of nurses who can be assigned to work at either nursing home any given week – then the work periods are added together and the employers are jointly and severally liable for paying the nurse 10 hours of overtime.

Not surprisingly, determining whether a horizontal joint employment relationship exists hinges on the degree of association between the two businesses at issue. In conducting this analysis, the DOL considers the following factors:

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

This list is not exhaustive and not all, or even most, of these factors are required for joint employment to exist.

Vertical Joint Employment

Vertical joint employment, in contrast, exists "where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity in the work." In these cases, the DOL reviews the following factors to determine whether the two entities constitute joint employers:

  • Does the potential joint employer direct, control, or supervise (even indirectly) the work?
  • Does the potential joint employer have the power (even indirectly) to hire or fire the employee, change employment conditions, or determine the rate and method of pay?
  • How permanent or lengthy is the relationship between the employee and the potential joint employer?
  • Does the employee perform repetitive work or work requiring little skill?
  • Is the employee's work integral to the potential joint employer's business?
  • Is the work performed on the potential joint employer's premises?
  • Does the potential joint employer perform functions for the employee typically performed by employers, such as handling payroll or providing tools, equipment, or workers' compensation insurance, or in agriculture, providing housing or transportation?

Again, this list is not exhaustive.

Obviously, the facts of a particular situation will determine whether a horizontal joint employment analysis or a vertical joint employment is appropriate. However, in some cases, both a horizontal and vertical analysis is applied.

What Does This Mean for My Company?

Although the Interpretation takes a sweeping view of what constitutes joint employment, it is not binding law. It was issued without any formal rule-making process or note-and-comment period (unlike the DOL's proposed revisions to the FLSA exemption regulations issued last June), and there is no certainty regarding the level of deference, if any, that courts will afford the Interpretation, if any.

Nevertheless, the Interpretation provides useful insight into the mindset of the nation's most prominent labor law watchdog. Because of this, employers should take seriously the threat of DOL enforcement action based on this Interpretation. Companies that might qualify as horizontal or vertical joint employers, especially those businesses that rely on staffing agencies or subcontractors for temporary help, should consult with counsel immediately and undertake an attorney-client privileged review of their current employment arrangements.

Stay tuned for next week's second installment.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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