United States: Employment & Labor Law Client Alert - February 2016

I. Brief Overview

When an employee works for two or more employers the potential for a joint employer relationship arises. Joint employment has significant consequences such that employers should determine at the outset of their employment relationships how the relationship will likely be characterized in order to accurately predict exposure and ensure statutory compliance.

Despite the significance of joint employer status, it is often difficult to ascertain when a joint employment relationship has been created. There is no bright line rule and courts apply different standards and evaluate different factors. Recognizing both the importance of the question and the difficulty of accurately coming to the answer, the U.S Department of Labor Wage and Hour Division recently published Administrator's Interpretation No. 2016-1 (the "Administrator's Interpretation") to guide employers through the joint employer analysis under the federal Fair Labor Standards Act ("FLSA") and the Migrant and Seasonal Agricultural Worker Protection Act ("MSPA"). The Administrator's Interpretation provides a rubric under which to evaluate any employment relationship.

II. Consequences of Joint Employment

Today's employers engage in countless business models and different employment relationships. The classic single employer, single employee relationship is less common. Instead employers obtain employees from staffing agencies, work with labor contractors to fill their needs, share employees amongst business, and engage in other creative employment relationships. Under the FLSA and the MSPA, when multiple employers are joint employers, the employee's hours worked for both employers are combined and considered a single employment. This characterization is used to calculate overtime violations.

For example, if an employee works 25 hours in one week for one employer and 25 hours in the same week for her other employer, she is entitled to 10 hours of overtime even though neither employer technically permitted the employee to work more than 40 hours. Additionally, as the name suggests, joint employers are jointly and severally liable for compliance with both the FLSA and the MSPA. In the example, each employer is responsible for the full 10 hours of overtime worked and the employee is entitled to collect the entire 10 hours of overtime from both employers or either employer. If one of the joint employers goes bankrupt, the employee is entitled to collect the entire amount from the solvent employer.

Given these realities, employers should evaluate whether they are creating a joint employment relationship at the beginning of the relationship to fully understand their obligations and their potential liability.

III. Joint Employment Is Broadly Defined Under the FLSA and the MSPA

Under the common law, joint employer relationships were determined solely by analyzing how much control each employer had over the employee in question. Antenor v. D & S Farms (1996) 88 F.3d 925, 933. However, the FLSA does not simply cite to control to define employment. Rather, the FLSA defines "employ" as "to suffer or permit work." 29 U.S.C. 203(g). This statutory definition has been called the "broadest definition that has ever been included in one act." United States v. Rosenwasser (1945) 323 U.S. 360, fn. 3. The MSPA adopts the FSLA's wide-ranging definition. 29 U.S.C. 1802(5).

Under the FLSA and the MSPA the key inquiry is not "control" but rather whether the employee is economically dependent upon the employer. Antenor v. D & S Farms (1996) 88 F.3d 925, 932. The FLSA and MSPA's expansive definition of "employ" translates into an equally expansive definition of "joint employer." Courts have repeatedly found joint employer relationships under the FLSA and the MSPA where the employer exhibited little control over the employee and a joint employer relationship likely would not have been found using the common law control test. Antenor v. D & S Farms (1996) 88 F.3d 925, n. 10 (citing Castillo v. Givens, 704 F.2d 181, 184 (finding dependence where grower visited farm only three or four times per week); Usery v. Pilgrim Equip. Co. (1976) 527 F.2d 1308 at 1312 (finding dependence where putative employer had "neither the right to hire employees nor the right to set hours"); Fahs v. Tree-Gold Co-op. Growers, Inc., 166 F.2d 40 at 43 (finding dependence where business had no right to control number of employees, wages or hours); Alviso-Medrano v. Harloff (1994) 868 F.Supp.1367, 1372 (finding employment relationship where no direct oversight by grower).

Further fragmenting the analysis, courts identify two different types of joint employment relationships: horizontal joint employers and vertical joint employers.

IV. Horizontal Joint Employer

A horizontal joint employer relationship may exist where two or more employers separately employ an individual but are related, overlap, or are associated in some way. Determining whether a horizontal joint employment relationship exists involves an analysis of all of the factors surrounding the relationship and focuses on the connection between the employers instead of between any one of the employers and the employee. Relevant factors include:

  1. Ownership of the potential joint employers;
  2. Whether the potential joint employers share officers, directors, executives, or managers;
  3. Shared control over operations;
  4. Intermingling of the potential joint employers' operations;
  5. Whether one potential joint employer supervises the work of the other;
  6. Shared supervisory authority for the employee;
  7. Whether the potential joint employers treat the employees as a pool of labor available to both of them;
  8. Shared clients or customers;
  9. The existence of an agreement between the potential joint employers.

These factors are not comprehensive and not every one of them must be present for a joint employer relationship to exist. Rather, the list identifies factors which tend to show a connection between the potential horizontal joint employers sufficient to indicate the employee's economic dependence upon both. A straightforward example of a horizontal joint employer scenario is a food server who works at two separately owned restaurants where the restaurants have the same officers and directors, share managers, rotate food servers in and out of each restaurant to meet specific demands, and share administrative offices. In such a case a court would likely find a horizontal joint employment relationship existed.

V. Vertical Joint Employers

By contrast, analysis of vertical joint employer relationships focuses not on the relationship between the employers but rather on the relationship between the employee and the potential joint employer. The classic vertical joint employer scenario is the employer (the "potential joint employer") which has contracted with an employment agency (the "intermediary employer") to provide laborers to the potential joint employer. In these situations there is typically an admitted relationship between the employee and the intermediary employer (the employment agency). As a result, the focus of the joint employer analysis is on the relationship between the employee and the potential joint employer. The core question for determining the existence of a vertical joint employment relationship is whether the employee is economically dependent on the potential joint employer.

Given the nature of the vertical joint employment relationship, the first question that must be resolved is whether the intermediary employer is actually an employee of the potential joint employer. If so, the intermediary employer's employees are subsumed as employees of the potential joint employer. The Administrator's Interpretation gives the following example: "...if a farm labor contractor is not actually an independent contractor but is an employee of the grower (i.e. is economically dependent on the grower as a matter of economic reality), then all of the farm labor contractor's farmworkers are also employees of the grower."

If the intermediary employer is an employee of the potential joint employer, there is no need to do a vertical joint employment analysis because the potential joint employer is the employer of all involved parties. If however the intermediary employer is not the potential joint employer's employee, courts use a seven factor test to determine whether the employee is economically dependent upon the potential joint employer. Although control is referenced, the factors are not a control test and instead focus on the economic realities of the employment relationship. The factors are:

Whether the potential joint employer directs, controls or supervises the work performed beyond a reasonable degree of contract performance oversight;

  1. Whether the potential joint employer has the power to hire and fire the employee, modify employment conditions, or determine the rate or method of pay;
  2. Whether the employee has a permanent, indefinite, or full-time position with the potential joint employer;
  3. Whether the employee is engaged in repetitive and rote work which requires little or no training;
  4. Whether the employee's work is integral to the business of the potential joint employer;
  5. Whether the work is performed on premises owned by the potential joint employer;
  6. Whether the potential joint employer performs administrative functions – such as providing workers' compensation insurance, handling payroll, providing safety equipment – commonly performed by employers.

The Administrator's Interpretation provides the following example of a likely vertical joint employment relationship:

  • A worker is hired by a farm laborer contractor (FLC) to pick produce on a Grower's farm. The FLC hired and pays the worker. The Grower dictates the timing of the harvest, which fields the worker should harvest, and the schedule each day. The Grower keeps track of the amount of produce that the worker picks per hour. The Grower provides the buckets for the produce, transports the produce from the field, and stores the produce. The Grower pays the FLC per bucket of produce picked, and withholds money to cover workers' compensation insurance. The worker has been continuously working on the Grower's farm during the harvest seasons, whether through this FLC or another farm labor contractor.  

VI. California's Joint Employer Rules

Industrial Welfare Commission ("IWC") Wage Order No. 1-2001, which regulates the wages, hours, and working conditions in the manufacturing industry, defines an "employer" as any person or entity "who directly or indirectly... employs or exercises control over the wages, hours, or working conditions of any person." Much like the FLSA and the MSPA, it also defines "employ" as to "engage, suffer, or permit to work."

The California Supreme Court interpreted that language for the first time in Martinez v. Combs (2010) 49 Cal.4th 35, and concluded that "employer" as used in the IWC Wage Orders includes any entity that controls an employee's wages, hours, and working conditions, or any one of those aspects of the employment relationship. Id. at 52, 59. Thus, the definition,

  • reach[es] situations in which multiple entities control different aspects of the employment relationship, as when one entity, which hires and pays workers, places them with other entities that supervise the work. Consistent with this observation, the IWC has explained its decision to include the language in one modern wage order as "specifically intended to include both temporary employment agencies and employers who contract with such agencies to obtain employees within the definition of 'employer.'" Id. (emphasis added).

The vertical joint employer relationship discussed above has been codified in California in Labor Code § 2810.3. The Labor Code refers to the potential joint employer as the "client employer" and defines that terms to mean "a business entity, regardless of its form, that obtains or is provided workers to perform labor within its usual course of business from a labor contractor." Id. The Code uses the term "labor contractor" to identify the intermediary employer discussed above. "Labor contractor" is defined as "an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer's usual course of business."

Using these terms the Labor Code then codifies the joint relationship in subsection (b), stating: "A client employer [the potential joint employer] shall share with a labor contractor [the intermediary employer] all civil legal responsibility and civil liability for all workers supplied by that labor contractor for both of the following: (1) The payment of wages[ and] (2) Failure to secure valid workers' compensation coverage..."

While the IWC Wage Order mentions "control" for purposes of establishing an employer relationship, its definition of "employ" as to "engage, suffer, or permit to work" is almost identical to the FLSA and MSPA definition of employ. This broad definition indicates a broad application of joint employer rules similar to that under the FLSA and MSPA. Moreover, the mandatory vertical joint employer rules under Labor Code § 2810.3 mean that joint employer relationships are more strictly applied in California than under federal statutes.

VII. Summing It All Up

Employers often outsource their staffing needs in order to free up time to focus on other aspects of their specific business and to insulate their companies from liability. However, the broad interpretations of joint employment under the FLSA and the MSPA may find joint employment relationships – and joint and several liability – where the common law control test did not. It is therefore incumbent upon employers to analyze their specific employment relationships to ensure they are compliant with FLSA and MSPA requirements.

The ultimate question is whether the employee is economically dependent. When an employee works for two separate employers that share a connection, a horizontal joint employment relationship may exist. Employers should examine the relationship between the two employers to evaluate whether the connection creates economic dependence by the employee upon both employers.

Vertical joint employment relationships – like employers who utilize staffing companies – will be evaluated by scrutinizing the relationship between the employee and the potential joint employer. The evaluation is difficult and subjective. Nevertheless, it should be completed early and reviewed when changes to the employment relationship are made.

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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