The Department of Labor (DOL) recently posed the question “Are You a Joint Employer?” on its blog when it issued Administrator’s Interpretation No. 2016-1. The guidance addresses joint employment of temporary and other contingent workers and reinforces that providing more workers with protection under the Fair Labor Standards Act (FLSA) is a DOL priority.

This guidance comes on the heels of the DOL’s July 2015 Administrator’s Interpretation on misclassification of independent contractors. The July guidance focused on whether there is an employment relationship between a company and its independent contractors (particularly self-employed contractors), such that the company is liable for minimum wage and overtime violations for that worker under the FLSA. This latest guidance focuses on whether there is a joint employment relationship between a company and workers employed by a third-party intermediary business, such as a staffing agency, third-party management company, subcontractor or other labor provider, such that both the company and the third-party business are jointly liable for FLSA violations.

What Industries Are Affected?

All industries. The guidance contains sample scenarios of joint employment that will likely resonate with most employers, including those in the construction, medical, agricultural, janitorial, manufacturing, warehouse and logistics, staffing and hospitality industries. Thus, it is important that each employer take a fresh look at its contingent workforce arrangements, review the factors that are relevant in determining whether joint employment exists and take steps to minimize the risk.

Relevant Factors

Joint employment can exist where a company contracts for workers through an intermediary business (e.g., staffing agency) and those workers are economically dependent on the company. In that case, the workers are jointly employed by the company and intermediary business. For example, a worker placed by a staffing company to do housekeeping work at a hotel may be jointly employed by the staffing company and the hotel. A production worker placed by a staffing agency to perform general labor at a manufacturing company may be jointly employed by the staffing company and the manufacturer. A subcontractor’s construction worker may be jointly employed by the general contractor.

The DOL applies the economic realities test (the same test used for independent contractor misclassification), which examines the economic realities of the relationship between the construction worker and the general contractor, the temporary general laborer and the manufacturer, or the housekeeper and the hotel, to determine whether the workers are economically dependent on those potential joint employers and are thus their employees.

The relevant factors are:

  • The extent to which the potential joint employer directs, controls or supervises the work performed.
  • The extent of control over the terms and conditions of employment.
  • The permanency and duration of the relationship.
  • The repetitive and rote nature of the work.
  • Whether the worker’s services are integral to the business.
  • Whether the work is performed on the potential joint employer’s premises.
  • The extent to which the potential joint employer performs certain administrative functions.

Joint Employment Test vs. Common Law Employer Test

The concepts of employment and joint employment under the FLSA are much broader than the common law concepts of employment and joint employment, such as the tests for determining employment for federal tax or Affordable Care Act purposes.

Pursuit of the Deep Pockets?

Businesses should be aware that the DOL may look to the joint employer test as way to hold larger companies liable where a smaller, less sophisticated intermediary business may not comply with the FLSA, or even be subject to the FLSA on its own. In the DOL’s view, a large, established company has “a greater ability to implement policy or systemic changes to ensure compliance,” compared to an intermediary business. On the other side of the coin, the guidance indicates that smaller staffing agencies and businesses that bring in less than $500,000 in revenue and would not otherwise be subject to the FLSA could be deemed covered employers if found to be joint employers. The DOL indicates it “may consider joint employment to achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations.”

Evaluating Risks

To avoid being caught off-guard, businesses should be aware that the DOL’s enforcement activities include pursuing joint employment and misclassification issues. Steps to consider include:

  • Evaluating relationships with contingent workers to identify risks and ways to minimize those risks with the help of employment counsel. A business should not assume that no risk exists merely because an arrangement is common in the industry. Facts specific to a particular arrangement may put the employer at greater risk.
  • Reviewing all agreements with staffing agencies and other labor providers to ensure contracts accurately reflect each party’s obligations. Specifically, contracts should contain language requiring the staffing agency to comply with wage and hour laws, and provide for indemnification in the event of noncompliance. An employer should be cautious about signing form agreements provided by the third party unless first reviewed by employment counsel.
  • Talking with employment counsel about whether to audit labor providers for compliance with the FLSA and other laws.