On April 1, 2019, the Wage and Hour Division of the Department of Labor (“DOL”) proposed a new, clear-cut test for determining “joint employment” under the Fair Labor Standards Act (“FLSA”). According to the DOL, the proposed changes are designed to promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.
The proposed four-part test considers whether the potential joint employer actually exercises the power to:
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Hire or fire the employee;
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Supervise and control the employee's work schedules or conditions of employment;
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Determine the employee's rate and method of payment; and
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Maintain the employee's employment records.
This four-part balancing test would replace antiquated FLSA guidance that had vaguely suggested that two entities may be joint employers if they are “not completely disassociated” from each other. Over the years, this broad language had evolved into contradictory tests applied in different federal courts that arrived at inconsistent conclusions as to the existence of joint employer relationships. The new four-part balancing test is slated to eliminate any circuit splits over the issue and, according to the DOL, is supposed to make joint employer analysis: “simple, clear-cut, and easy to apply.”
The four-part balancing test was derived from a Ninth Circuit case entitled Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983) abrogated on other grounds, Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985). However, the DOL has modified the test in Bonnette by proposing that even if an entity has reserved contractual rights to act with respect to an employee’s terms and conditions of employment, that theoretical ability is irrelevant for purposes of the joint employer analysis. This modification to Bonnette is likely one of the reasons why the proposed new rule is expected to provide greater protection to franchisors and companies that use staffing agencies.
The DOL’s proposed rule also states that additional factors could be applied to the joint employer analysis if it appeared that a potential joint employer was exercising significant control over employees or otherwise acting directly or indirectly in the interest of the employer in relation to the employee. However, the DOL made clear that the joint employment test would not look to whether the worker is economically dependent on the potential joint employer. Economic dependence would no longer be relevant to the joint employment analysis, but still would remain relevant to whether a worker is an employee or independent contractor of the employer.
The DOL’s proposed rule also explains that an entity’s business model (such as a franchise model), certain business practices (such as allowing an employer to operate a store on the person’s premises, or participating in an association health or retirement plan), and certain business agreements (such as requiring an employer in a business contract to institute sexual harassment policies), do not make joint employer status more or less likely under the Act.
The Notice of Proposed Rulemaking (“NPRM”) will publish on April 9, 2019 in the Federal Register, at which time interested parties may submit comments on the proposal at www.regulations.gov in the rulemaking docket RIN 1235-AA26 by June 10, 2019. Only comments received during the comment period will be considered part of the rulemaking record.
