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Yours, Mine or Ours? US Department of Labor Wage and Hour Division issues new Joint Employer Standard

February 8, 2016

By Francis T. Barnwell

On January 20, 2016, the United States Department of Labor, Wage and Hour Division issued an Administrator’s Interpretation (“AI”), effectively an advisory opinion, explaining how it will interpret joint employer status under the Fair Labor Standards Act (“FLSA”) and Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”).[1]  While this AI is not binding authority, it is a clear flare that the Wage and Hour Division (WHD) intends to take more aggressive enforcement positions against those it deems “joint employers,” which will likely include an effort to expand FLSA and MSPA statutory coverage to smaller businesses and hold larger employers responsible for unpaid back wages and overtime obligations. 

Indeed, the WHD’s new definition is broader than the position advanced by the National Labor Relations Board under its recently expanded joint employer test in Browning-Ferris Industries of California, Inc..[2] The WHD approach, in a nutshell, rejects the common law control test for employment and looks at the connections between the two entities where an individual is employed by both (horizontal joint employers) and the economic realities as to whether an individual employed by one entity is economically dependent on another entity (vertical joint employers).  In a simultaneously issued blog post, the WHD Administrator, David Weil stated that joint employment has been and will continue to be a “major focus” for the WHD.

By way of a refresher course in federal wage and hour enforcement, the WHD is charged with enforcing the FLSA, which at its essence, requires employers to (1) pay employees at least the federally mandated minimum wage; (2) pay employees overtime wages of time and a half for all hours worked in excess of forty hours per regular workweek; and (3) prohibits discrimination against any employee who reports an FLSA violation.  The MSPA has similar provisions applicable to seasonal agricultural workers. 

In light of these enforcement issues and the significant penalties which potentially fall upon the “employer” for erroneous wage and hour calculations, “[w]hether an employee has more than one employer is important in determining employees’ rights and employers’ obligations under the FLSA and MSPA,” (AI, p 2).  The AI provides guidance on when two or more employers jointly employ an employee and are thus jointly liable for compliance under the FLSA or MSPA.

The FLSA and MSPA Joint Employer Test

The AI details two types of joint employment—horizontal and vertical—which business should note when assessing their legal obligations and risk.  According to the AI:
 
  • Horizontal joint employment “exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.”  To determine whether horizontal joint employment exists, the WHD will look at the following non-inclusive list of factors:
     
    • who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
    • do the potential joint employers have any overlapping officers, directors, executives, or managers;
    • do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
    • are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
    • does one potential joint employer supervise the work of the other;
    • do the potential joint employers share supervisory authority for the employee;
    • do the potential joint employers treat the employees as a pool of employees available to both of them;
    • do the potential joint employers share clients or customers; and
    • are there any agreements between the potential joint employers.
         
(AI, p. 8). 
 
  • Vertical joint employment “exists where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.”  Instead of the current FLSA joint employment regulations, the AI announces that it will apply an “economic realities” test to evaluate whether vertical joint employment exists, ultimately assessing whether there is “economic dependence” between the entities. In applying this economic realities test, the AI asserts that the WHD will look at the following non-inclusive list of factors drawn from the MSPA:
 
  • Directing, Controlling, or Supervising the Work Performed. To the extent that the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the potential joint employer.
     
  • Controlling Employment Conditions. To the extent that the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control indicates that the employee is economically dependent on the potential joint employer.
     
  • Permanency and Duration of Relationship. An indefinite, permanent, full-time, or long-term relationship by the employee with the potential joint employer suggests economic dependence.
     
  • Repetitive and Rote Nature of Work. To the extent that the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training, those facts indicate that the employee is economically dependent on the potential joint employer.
     
  • Integral to Business. If the employee’s work is an integral part of the potential joint employer’s business, that fact indicates that the employee is economically dependent on the potential joint employer.
     
  • Work Performed on Premises. The employee’s performance of the work on premises owned or controlled by the potential joint employer indicates that the employee is economically dependent on the potential joint employer. The potential joint employer’s leasing as opposed to owning the premises where the work is performed is immaterial because the potential joint employer, as the lessee, controls the premises.
     
  • Performing Administrative Functions Commonly Performed by Employers. To the extent that the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work, those facts indicate economic dependence by the employee on the potential joint employer.

(AI, p. 11-12).   
 
Examples of a horizontal joint employment relationship are where “a waitress works for two separate restaurants that are operated by the same entity and the question is whether the two restaurants are sufficiently associated with respect to the waitress such that they jointly employ the waitress; or where a farmworker picks produce at two separate orchards and the orchards have an arrangement to share farmworkers.”  (AI, p. 7).

Examples of a vertical joint employment relationship are:  garment workers “are directly employed by a contractor who contracted with the garment manufacturer to perform a specific function”; “nurses placed at a hospital by staffing agencies”; or “warehouse workers whose labor is arranged and overseen by layers of intermediaries between the workers and the owner or operator of the warehouse facility.” (AI, p. 9, citations omitted).

Obviously, these broad definitions of joint employment may potentially be problematic to some staffing relationships developed with the understanding that there was not joint employment with respect to one or more aligned businesses.  Businesses located in the Ninth Circuit (including Oregon) have previously been required to consider a more expansive joint employer test as the Ninth Circuit has applied a number of the above factors to vertical joint employment situations in FLSA cases to “help to determine whether the employee is economically dependent on the potential joint employer.”  (AI, p. 12-13 (citing Carrillo v. Schneider Logistics, 2014 WL 183956, at *6 (applying a joint employment economic realities analysis)).

What to Do in Light of the New Guidance
 
  • First, don’t panic.  The AI reflects a departure from the DOL’s current standards, yet the DOL did not pursue the “notice-and-comment” procedures required under the Administrative Procedures Act when regulations are changed. Thus, the AI is almost certain to be challenged via litigation. 
     
  • Second, take note that the AI reflects the WHD’s clear intent to more closely scrutinize employment relationships and take an aggressive enforcement position when joint employment exists.  In addition to its published guidance, the DOL has created a new page on its website dedicated to the joint employer issue.
     
  • Finally, evaluate the potential implications of this AI on your staffing contracts and aligned business relationships.  If an employer is at risk of being found to be a joint employer with another entity, the employer can consider avenues to reduce liability risks, including (1) evaluate the horizontal and vertical joint employer factors and manage the reality and/or the relationship to minimize risk under the factors, (2) review and ensure that favorable indemnification language exists in any contract or agreement with an associated entity, and (3) consider communicating with the associated entity to confirm or obtain reassurances, that the entity is complying with wage and hour obligations.  The AI specifically mentions the construction, agricultural, janitorial, warehouse and logistics, staffing, and hospitality industries as frequently having unacknowledged joint employer situations; consequently, these industries should take particular note of this interpretation. 

Possible joint employer situations continue to be an area of the law that is highly scrutinized.  Bullard Law can help analyze your current personnel and contractor relationships in light of the WHD’s expansive position on joint employment and help strategize ways to structure and defend alternative work force arrangements.  For more information about this significant development and its potential impact, please feel free to contact us.
 
[1] Department of Labor, Wage and Hour Division, Administrator's Interpretation No. 2016-01 (Jan. 20, 2016), available at http://www.dol.gov/whd/flsa/Joint_Employment_AI.pdf.

 
[2] In the August 27, 2015 Browning-Ferris Industries of California, Inc. decision, the National Labor Relations Board adopted a new joint employer standard, holding that a putative joint employer is no longer required to exercise “direct and immediate” control over workers’ terms and conditions of employment, but “indirect” or even “reserved” control is now potentially sufficient to establish a joint employment relationship (as previously discussed in in our August 28, 2015 Bullard Edge post).
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