Labor and Employment
Action Item: On January 20, 2016, the U.S. Department of Labor’s (“DOL”) Wage and Hour Division (“WHD”) issued guidance regarding the determination of joint employer status under both the Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). The WHD’s expansive definition of joint employment will adversely impact third-party entities that permit someone—who is employed directly by another employer—to work. This guidance demonstrates the WHD’s ongoing effort to ensnare more entities in the web of potential liability under the FLSA and MSPA. Businesses and individuals should review this latest guidance to ensure compliance and minimize the risk of liability.
The DOL’s latest effort follows last summer’s unveiling of a proposed rule to expand the number of workers entitled to minimum wage and overtime pay (which you can read more about here) and guidance warning against misclassification of employees as “independent contractors” (see our prior alert here). This guidance is also not surprising, in that it follows a similar expansion of joint employer status by the National Labor Relations Board in its Browning-Ferris Industries decision in August 2015.
In this latest Administrator’s Interpretation (“AI”), the WHD goes to great lengths to explain the broad scope of the joint employer determination, revealing its intent to bring as many entities as possible under the umbrella of FLSA (and MSPA) coverage. As noted in the AI, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.
The AI notes that joint employment relationships can exist in two distinct forms—“horizontal” and “vertical.” Where two or more employers each separately employ an employee but are sufficiently related or associated with one another, they will be joint employers. So, the employee clearly works for both employers—but the critical relationship is that which exists between the two employers. For example, this type of “horizontal” joint employment relationship exists where a server works for two different but related restaurants—such as where the restaurants have common owners, overlapping management, shared or intermingled operations, or shared supervision or control over the employees. In such a situation, where the employee works 25 hours for one restaurant in a work week and then 20 hours for the other in the same work week, the hours would be aggregated such that overtime would be due for the hours exceeding 40 in that work week.
On the other hand, “vertical” joint employer relationships exist when an employee is clearly employed by one employer, but may also be economically dependent or tied to another entity. The prototypical scenario where this issue arises is in the staffing industry—for example, the staffing company, which is the direct employer of the workers, provides those workers to its client to perform services. The question is whether the client is also an employer (i.e., a joint employer). The AI lays out detailed analysis to be used in such situations and also provides several factors that should be evaluated in determining the existence of vertical joint employment relationships.
If anyone thought that the WHD was limiting its focus to the new proposed white collar exemption regulations and independent contractor misclassifications, do not be fooled. The WHD is singularly focused on finding violations wherever it can while expanding the pool of potentially liable entities as broadly as possible.
As the DOL continuously reminds employers, under the FLSA, “employ” means “to suffer or permit to work.” Once again, however, given the current DOL leadership and recent track record, this effort seems targeted as another vehicle whereby third-party entities may suffer for permitting someone (who is employed directly by another) to work.
