United States: DOL Issues Final Rule On Joint-Employer Status Under Fair Labor Standards Act

On January 13, 2020, the U.S. Department of Labor (DOL) released its long-awaited final rule regarding joint-employer status under the Fair Labor Standards Act (FLSA). The final rule is scheduled to be published in the Federal Register on January 16, 2020, and will become effective 60 days from its publication date.

By way of background, under the FLSA, an employee of one company may be found to be the joint employee of a second, independent company, depending on the nature and extent of the control over the employee's work exerted by the second business. This may have significant consequences, as a joint employer can be held jointly and severally liable for FLSA wage and hour obligations to the employee (for example, payment of minimum wage, or payment of overtime to non-exempt employees).

The DOL's final rule sets forth a four-factor balancing test for determining joint-employer status under the FLSA. In determining whether a second company is a joint employer of a worker, the DOL will examine whether the putative joint employer:

  • Hires or fires the employee;
  • Supervises and controls the employee's work schedule or conditions of employment to a substantial degree;
  • Determines the employee's rate and method of payment; and
  • Maintains the employee's employment records.

No single factor is dispositive in determining joint-employer status, and the weight of each of the factors may vary based on the facts of each case. The final rule does make clear, however, that mere maintenance by one company of employment records of another will not, itself, establish joint-employer status.

The final rule further clarifies that to be a joint employer under the FLSA, a second employer must actually exercise—directly or indirectly—one or more of the four control factors. The reserved right to exercise this control may in some instances be relevant for determining joint-employer status, but such a reserved right, if not actually utilized, will not, without other factors, establish a joint-employer relationship.

The final rule also establishes when additional factors may be relevant to a determination of FLSA joint-employer status, and identifies certain business models and business practices that do not make joint-employer status more or less likely. Perhaps most significant, the final rule expressly provides that the use of the franchise model does not mean that a franchisor is more likely to be the joint employer of its franchisee's employees.

Similarly, that a contracting business requires certain terms and conditions relating to the employees of another company (such as requiring that a subcontractor company institute sexual harassment policies) does not increase the likelihood of the contracting company's being deemed a joint employer. The final rule includes a number of examples illustrating the application of the four-factor test to these and other business-to-business fact patterns. These examples are intended to provide practical guidance to employers with joint employment concerns in structuring their business relationships with other companies.

The final rule largely tracks the DOL's proposed joint-employer rule published in April 2019. Prior to the publication of the final rule, the FLSA's joint-employer standard had not been substantively adjusted for over 60 years. The National Labor Relations Board is expected to release a final rule setting forth standards for joint-employer status under the National Labor Relations Act shortly; the Equal Employment Opportunity Commission has likewise indicated its plan to release a proposed joint-employer rule in the months to come. A number of states have other formulations of joint-employment liability under their own wage and hour laws, which differ from federal standards and which employers still need to take into account.

Nevertheless, the DOL's final rule is generally considered a positive development for the business community, as the new standard for determining joint-employment liability under the FLSA is narrower and clearer than that created by guidance issued under the prior administration. Moreover, the DOL's new rule could encourage greater uniformity among the many federal appellate courts that have articulated their own tests for joint employment. The four-part test adopted by the Department could bring some much-needed clarity to this important issue.

Employers assessing their potential status as joint employers are advised to consult with counsel.

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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