Department Of Labor Issues Guidance On Joint Employment

Department Of Labor Issues Guidance On Joint Employment

On January 20, 2016, the Wage and Hour Division of the U.S. Department of Labor issued its “Administrator’s Interpretation No. 2016-1” in which it purports to offer guidance to employers on the issue of “joint employer” relationships under the Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agriculture Worker Protection Act (“MSPA”).  The Interpretation notes the DOL has encountered a growing variety and number of business models and labor arrangements that have resulted in “joint employer” findings becoming more common.  Employers should take heed because the issue of whether there is more than one employer has consequences in determining employees’ rights as well as the employer’s obligations under the FLSA and MSPA.  For instance, when there are joint employers, those employers could have compliance issues regarding the number of hours an employee works in a particular week for any of the joint employers, which could trigger overtime pay.

The Interpretation notes that there are often two scenarios in which joint employment may exist:  horizontal joint employment and vertical joint employment.  Furthermore, the Interpretation reiterates that for purposes of the FLSA and MSPA, both the employment relationship and thus the scope of joint employment will be interpreted broadly.  For instance, the FLSA defines “employ” to include “to suffer or permit to work.”  29 U.S.C. § 203(g).  As the U.S. Supreme Court has noted, the definition of employment as “suffer or permit” is one of “the broadest definitions that has ever been included in any one act.”  U.S. v. Rosenwasser, 323 U.S. 360, 363, n.3 (1945).

The Interpretation continues by recognizing that the concept of “joint employment” should be defined expansively and is much broader than common law concepts of employment, which focus on the issue of control over a worker.  Thus, employers may be at risk of a finding of a joint employment relationship even when they have little to no control over the employee performing the work.

The Interpretation next addresses the potential analyses for determining whether a horizontal joint employment or vertical joint employment relationship exists.  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.”  As examples, the Interpretation describes a waitress who works at two separate restaurants “that share economic ties and have the same managers controlling both restaurants” or home health care providers that share staff and have common management.  As to a vertical joint employment, the Interpretation notes that this is when one employee of one employer, in performing work for one employer, is “economically dependent on another employer.”  Examples of vertical joint employment occur when a construction worker, who works for a subcontractor, is also “employed” by the general contractor or when a farm worker who works for a farm labor contractor is also “employed” by the grower.

The Interpretation then drills down into a little more detail on horizontal and vertical joint employment relationships.  In determining whether a horizontal joint employment relationship exists, the DOL will focus “on the relationship (and often the degree of association) between the two (or more) potential joint employers with respect to the employee and all of the relevant facts of the particular case.” Factors that the DOL will consider in determining whether a horizontal joint employment relationship exists, include: (1) who owns the potential joint employers (i.e., do they have common owners); (2) do the potential joint employers have any overlapping management such as officers or directors; (3) do the potential joint employers share control over operations (i.e., hiring, firing, payroll, etc.); (4) are the operations of the potential joint employers intermingled (i.e., do they share “back office” functions); (5) does one potential joint employer supervise the work of the other; (6) do they share supervisory authority for an employee; (7) do they treat employees as a pool of employees available to both of them; (8) do they share clients and customers; and (9) are there any agreements between the potential joint employers.  However, the Interpretation makes clear that joint employment does not exist “if the employers `are acting entirely independently of each other and are completely disassociated’ with respect to an employee who works for both of them.”

With regard to a vertical joint employment relationship, the Interpretation states that the focus should be “on whether the employee of the intermediary employer is also employed by another employer, the potential joint employer.”  For instance, in vertical joint employment situations, one employer “typically has contracted or arranged with the intermediary employer to provide it with labor and/or perform for it some employer functions such as hiring and payroll.”  Although there is an admitted employment relationship between the employee and the intermediary employer, the employee’s work typically also benefits the other (potential joint) employer. One added wrinkle is whether the “intermediary employer” is also an employee of the potential joint employer in which case all of the intermediary employer’s employees are also considered employees of the other potential joint employer.  Thus, a vertical joint employment analysis will only be required when the intermediary employer is an independent contractor of the other potential joint employer rather than its employee.

The focus of a vertical joint employment analysis is on the “economic realities” and does not focus only on control.  The Interpretation notes that there are seven factors to consider in determining whether a vertical joint employment relationship exists: (1) the degree to which the potential joint employers direct control or supervise the work performed; (2) the extent to which the potential joint employers control the employment conditions, including the power to hire or fire; (3) the duration and permanency of the relationship between the employee and the potential joint employers; (4) whether the work performed by an employee is repetitive and rote, unskilled or requires little or no training; (5) whether an employee’s work is an integral part of the potential joint employer’s business; (6) whether the employee performs work on the premises of the potential joint employer; and (8) whether administrative functions are performed commonly between the potential joint employers such as handling payroll, providing workers compensation insurance, etc.  The Interpretation notes, however, that while courts have applied these factors to determine whether a vertical joint employment exists in FLSA matters, they have not expressly relied on these factors in cases under the MSPA.  However, the Interpretation recognizes that various circuit courts of appeal apply some combination of these factors for purposes of their analysis.

Employers are cautioned that the DOL’s interpretation issued earlier this month indicates they remain focused on the issue of joint employment and whether potential joint employers are in compliance with their obligations under the FLSA and/or MSPA.  Employers that are “sharing” employees or engaging in various subcontracting work may wish to re-examine whether their operations fall within the “joint employment” relationship analysis so that they remain in compliance with their obligations under the FLSA and/or MSPA.

Contributor:  James Kachmar, Shareholder | Weintraub Tobin