In new guidance issued on January 20, the Department of Labor (DOL) has aggressively interpreted its authority “as broad as possible” to hold employers responsible for wage and hour violations committed by separate “joint employers.” This guidance, issued by David Weil, the administrator of DOL’s Wage and Hour Division, makes clear those businesses sharing employees or using contractors or temporary staffing agencies may become legally responsible for wage and hour violations committed by another employer.

To avoid unnecessary violations, employers should be knowledgeable of the rules prior to any potential joint employer relationships. Below we recap the changes in standards and provide examples of how they affect employers.

Defining Joint Employers

We have previously discussed how the National Labor Relations Board has expanded its definition of “joint employer” to cover a business’s mere possession of authority to control the terms and conditions of employment over a contractor’s or staffing agency’s employees. DOL has now moved in a similar direction – although the test for joint employment under the Fair Labor Standards Act (FLSA) is different.

Under the FLSA, workers who are not exempt must be paid at least minimum wage for all hours and receive overtime pay for all hours worked beyond 40 hours in a week. If two employers are considered joint employers, then both of them may be held liable for unpaid wages and penalties.

Horizontal vs. Vertical Joint Employment

There are two kinds of joint employment: horizontal joint employment and vertical joint employment, which DOL has explained with “graphical illustrations” also published on January 20, 2016.

Horizontal joint employment means that two employers are responsible for the violations of each other because of how they jointly use the same employees. For example, two restaurants that are separate legal entities are joint employers if they have common ownership and joint control over employees. Below are some of the factors for horizontal joint ownership outlined by DOL:

  • Common owners and/or managers
  • Shared control over hiring and firing
  • Coordination of hours and scheduling
  • Joint supervision of employees
  • Use of same payroll system

So if an employee works 40 hours per week at Restaurant A and 10 hours per week at Restaurant B, DOL can sue both businesses for 10 hours per week of unpaid overtime and recover the entire amount owed from either entity if they are found to be horizontal joint employers. However, no joint employment relationship exists when the entities do not have common management or ownership and have no arrangement by which they share employees.

Vertical joint employment means that two employers are responsible for the violations of each other because of the control an employer exercises over the employees of an “intermediary employer” such as a contractor or staffing agency. DOL uses a hotel that assigns workers through a staffing agency as an example; the hotel and staffing agency are joint employers if the “economic realities” of the arrangement suggest that the workers are actually employees of the hotel. DOL looks at the following factors in deciding whether an employer is a joint employer with its intermediary:

  • Work is performed on the employer’s premises
  • The employer has power to hire, fire, or discipline the workers
  • The employer supervises the workers
  • The employer sets the workers’ schedule or controls other working conditions
  • The workers are retained on an ongoing or long-term basis
  • The work performed is repetitive, unskilled, and/or requires little training

Thus, the more control an employer exerts over its contractor’s or staffing agency’s employees, the more likely it is to be considered a joint employer. DOL is also particularly concerned about unskilled workers, emphasizing that “the ultimate inquiry is whether the employee is economically dependent on the potential joint employer.” Arrangements for short-term work in which the contractor or staffing agency retains control over the workers’ pay, schedule, discipline, and other working conditions indicates there is no joint employment.

Next Steps for Businesses

In a blog post on January 20, 2016, Weil also argues that employment relationships have become “more tenuous and murky” and argues that stepped up enforcement is needed to protect employees. He cites high-profile DOL actions against a cable company for wages of installers hired by a contractor and against a food and beverage company for wages of temporary workers assigned through a staffing agency as examples of the agency’s willingness to go after a secondary employer for another entity’s wage and hour violations.

Employers that utilize alternative employment arrangements need to be mindful of these rules to avoid facing liability for another entity’s mistakes. DOL’s Q&A page on this guidance singled out the home health care, construction, agriculture, warehousing and logistics, staffing, and hospitality industries as industries where joint employment is likely.