DOL’s Wage and Hour Division wages war on joint employer standard

The Department of Labor’s Wage and Hour Division (WHD) issued an Administrator’s Interpretation (AI) on January 20, 2016, addressing the recent hot topic of joint employment. The AI specifically addresses the standards for determining whether a joint employment relationship exists under the Fair Labor Standards Act (FLSA) and Seasonal Agricultural Worker Protection Act (MSPA). The new AI is consistent with the emphasis that the DOL and other federal agencies, such as the NLRB, have placed on expanding the number of covered employees in today’s “fissured” workplace by bringing as many workers as possible under the coverage of the FLSA and other federal employment laws.

The AI examines the factors that are relevant for determining when a company is a joint employer for purposes of the federal wage law. While the AI does not state a new legal standard for determining joint employment, it does provide a new analytical framework for evaluating joint employment. It does so by noting a distinction between horizontal joint employment, vertical joint employment, and the factors relevant for each.

Horizontal joint employment

The AI provides that horizontal joint employment exists where two related, but distinct economic entities share an employee. The analysis, determining whether a horizontal joint employment relationship exists, focuses on the relationship between the two employers. For example, according to the AI, a horizontal joint employment relationship exists where two separate restaurants share economic ties, have the same managers controlling both restaurants, and share employees. The AI lists factors to consider in determining whether a horizontal joint employment relationship exists:

• Overlapping business owners of the potential joint employers;
• Overlapping officers, directors, executives, or managers;
• Shared control over operations;
• Intermingled operations;
• Supervision by one of the employers of the work done by the other employer;
• Shared supervisory authority over employee;
• Employee treated as part of pool of employees available to work for either employer;
• Shared clients or customers; and
• Any agreements between the potential joint employers.

Vertical joint employment

On the other hand, according to the AI, vertical joint employment exists when an employee of one employer is also economically dependent on another employer. For example, according to the AI, a vertical joint employment relationship would exist where a construction worker who is employed for a subcontractor, will also be considered employed by the general contractor that benefits from the worker’s services. Again, the AI points to a list of factors to use in making this determination:

• Directing, controlling, or supervising the work performed beyond reasonable oversight;
• Controlling employment conditions;
• Permanency and duration of relationship;
• Repetitive and rote nature of work;
• Integral to business;
• Work performed on premises; and
• Performing administrative functions commonly performed by employers.

What to expect moving forward

The standards articulated in the AI are significantly different from the existing agency rules and regulations. The AI is the WHD’s interpretation, not an enforceable regulation. However, the WHD will rely on it in evaluating employment relationships and assigning liability for FLSA violations, such as who is responsible for workers' pay and hours under the FLSA. While the AI’s legitimacy and enforceability are likely to be questioned, its release indicates that employers can expect the WHD’s close examination of any potential joint employer relationships. Employers most affected by a potential joint employer relationship – franchise businesses, subcontractors, third-party managers, and professional employer organizations – should carefully consider their existing business/employee relationships and take steps to fully understand their legal responsibilities.