The U.S Department of Labor (DOL) has announced a final rule that will revise its regulations regarding joint employer status under the Fair Labor Standards Act (FLSA). According to the DOL, the new rule will “add certainty regarding what business practices may result in joint employer status . . . [and] promote greater uniformity among court decisions by providing a clearer interpretation of FLSA joint employer status.” DOL, News Release – U.S Department of Labor Issues Final Rule to Update FLSA’s Joint Employer Regulations (January 12, 2020).
Joint employer status is relevant to whether another individual or entity may be jointly and severally responsible for an employee’s wages under the FLSA. The FLSA requires covered employers to pay their non-exempt employees at least minimum wage for every hour worked and overtime pay for every hour worked over 40 in a workweek. In addition to an employee’s employer, an employee may have one or more joint employers.
The final rule continues to recognize two situations in which an employee may have joint employers—one, when an employee is employed to work for one employer and another individual or entity simultaneously benefits from the work; and two, when an employee works a set number of hours in a workweek for one employer and a second set number of hours for a different employer in the same workweek. In situations in which an employee performs work for an employer that simultaneously benefits another entity or individual, the rule will apply a four-factor balancing test. The test assesses “whether the potential joint employer:
- hires or fires the employee;
- supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- determines the employee’s rate and method of payment; and
- maintains the employee’s employment records.”
DOL, Fact Sheet: Final Rule on Joint Employer Status under the Fair Labor Standards Act (January 2020).
The final rule explains that whether joint employer status will exist will depend on the facts of a particular case, but the potential joint employer’s maintenance of the employee’s employment records alone will not lead to a finding of joint employer status.
In addition to the four factors above, the final rule identifies additional factors that may be relevant in determining whether another individual or entity is a joint employer if the additional factor shows the employer is exercising control over the terms and conditions of the employee’s work. It also identifies factors that are not relevant to the determination of FLSA joint employer status such as operating as a franchisor.
The updated rule does not change the standard for determining joint employer status in the situation in which an employee works a set number of hours for two or more employers in a particular workweek. According to the DOL, if the employers are “sufficiently associated” with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each employer to determine if they are in compliance with the FLSA. “The employers will generally be sufficiently associated if there is an arrangement between them to share the employee’s services, the employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or they share control of the employee directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.” DOL, Joint Employer Final Rule Frequently Asked Questions – FAQ 14 (January, 2020).
The final rule will go into effect on March 16, 2020. Employers should review the circumstances in which they could be considered a joint employer and evaluate any applicable risk.