HR Legalist

The Tug-Of-War Continues: DOL Proposes New Rule to Provide a Clear Definition of “Joint Employer” Under the Fair Labor Standards Act

On April 9, 2019, the Department of Labor (“DOL”) published a Notice of Proposed Rulemaking aimed at clarifying the circumstances under which a business can be classified as a joint employer under the Fair Labor Standards Act (“FLSA”), and, therefore, liable for all wages due to employees. If adopted, the proposed rule would greatly curtail the expansive definition of “joint employer” the Obama Administration attempted to implement in multiple contexts. This has significant implications for businesses that utilize staffing agencies or otherwise employ workers indirectly.

Notably, this would be the first meaningful revision of the DOL’s joint-employer regulation since it was originally adopted in 1958. Under the original regulation, “multiple persons can be joint employers of an employee if they are ‘not completely disassociated’ with respect to the employment of the employee.” This frustratingly vague phrasing has led to differing interpretations in the courts and, therefore, uncertainty and heightened risk for businesses.

The proposal lays out a four-factor balancing test to assess if an indirect employer is a joint employer. It examines whether the indirect employer: (1) Hires or fires the employee; (2) Supervises and controls the employee’s work schedule or conditions of employment; (3) Determines the employee’s rate and method of payment; or (4) Maintains the employee’s employment record.

The proposal is the latest round in what has become a political game of tug-of-war over joint employer liability in multiple contexts spanning the last two presidential administrations. The Obama Administration took a theoretical and expansive approach to joint employment. In what can fairly be characterized as the joint-employer “shot heard ‘round the world,” the National Labor Relations Board (“NLRB”) issued the Browning-Ferris Industries of CA decision in 2015 (summarized by HR Legalist here). Controlled by Democrats, the NLRB held that even when two separate and distinct companies have never exercised joint control over essential terms of employment and even when there is no “direct and immediate” control on the part of the indirect employer, the two companies will be considered joint employers if there exists “reserved” yet “unexercised” joint control, including control that is “limited and routine” in nature. This incredibly broad language – not necessarily tethered to the actualities of the normal workplace – greatly expanded joint employer liability to include businesses not colloquially thought of as a worker’s “employer.”

Similarly, the DOL under the Obama Administration issued an Administrator Interpretation in which it adopted a test to assess joint employer status using an expansive “economic realities” test (summarized by HR Legalist here). This test heavily favored the finding of joint-employer status and was intended to be “as broad as possible.” It focused on both horizontal and vertical joint employment with the latter being akin to a situation where the employee works at one company but is employed by a separate company (think staffing agencies), and the former encompassing employees who work for two different, yet related, companies.  This Administrator Interpretation specifically targeted industries such as warehouse and logistics, construction, agricultural, janitorial, staffing, and hospitality. In fact, the then-head of the DOL’s Wage and Hour Division openly declared that most companies using staffing agencies would be considered joint employers of temporary workers under federal wage and hour laws, and therefore jointly and severally liable if the staffing agency failed to pay its temporary workers appropriately under the FLSA.

As we all now know, the tables turned following the 2016 Presidential election and, in moves that should bring delight to employers across the country, the Trump Administration has responded in kind. In addition to the DOL’s most recent proposal, the NLRB formally proposed a rule in September of 2018 that would reinstate the pre-Browning-Ferris standard, which included a “direct and immediate” control factor in the joint employer analysis.  The DOL has already withdrawn its prior Obama-era Administrator Interpretations on joint employment and independent contractors.

This flurry of action, and the DOL’s most recent proposal in particular, appears to be a direct rebuke of the Obama Administration’s expansive approach to joint employment. Indeed, the DOL’s most recent proposal expressly indicates that certain business arrangements, such as franchising, permitting an employer to operate a facility on premises, and requiring vendors to institute anti-sexual harassment policies, do not make a finding of joint-employer status more or less likely.

Regardless of their political views, businesses would be wise to remember that unless and until Congress provides clear guidance, this game of tug-of-war will be perpetual and the scope of joint employment will be left to the mercy of the current administration.  States also play a key role in defining what workers are considered “employees” for the purposes of mandatory state payroll deductions and anti-discrimination laws.  It is therefore imperative for businesses to frequently evaluate their practices with respect to temporary workers, consultants, and independent contractors.