California employers who work closely with one or more other employers in a single business enterprise need to be aware of a significant change in a California law that could have major liability repercussions.

On July 1, 2015, new regulations interpreting the California Family Rights Act (CFRA) took effect. One of the most significant changes included in the regulations is the new, broad definition of the concept of a "joint employer" for liability purposes (Title 2 of the California Code of Regulations, § 11087(d)(3)).

The federal Family and Medical Leave Act (FMLA) regulations address joint employer coverage as follows:

  1. Where two or more businesses exercise some control over the work or working conditions of the employee, the businesses may be joint employers under FMLA. Joint employers may be separate and distinct entities with separate owners, managers, and facilities. Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as:
    1.  Where there is an arrangement between employers to share an employee's services or to interchange employees;
    2.  Where one employer acts directly or indirectly in the interest of the other employer in relation to the employee; or,
    3.  Where the employers are not completely disassociated with respect to the employee's employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer.

29 C.F.R. § 825.106(a).

The new CFRA regulation is identical to the FMLA regulation, with one exception—the California regulation adds the following single sentence to the CFRA definition:

A determination of whether or not a joint employment relationship exists is not determined by the application of any single criterion, but rather the entire relationship is to be viewed in its totality based on the economic realities of the situation.

That portion of the new California definition is not further defined.  Its key concepts ("totality;" "economic realities") are found nowhere else in California regulations or statutes.  This is new California law, and its interpretation is up for grabs.

Why does this new definition matter to California employers that are potentially covered by this new CFRA regulation?  Because courts, when seeking guidance for the meaning of new statutory terms, look to other laws and regulations for possible guidance.  A major source of case law on an "economic realities" assessment of possible joint employment is the Fair Labor Standards Act (FLSA) -- the major federal wage and hour law, which is also the subject of many California class actions.

What are the consequences of this definitional association? A California employer's status as a joint employer for leave of absence purposes under a California law may be determined based on existing federal law concepts and cases underfederal wage and hour laws, which have a broader definition of the term than does the FMLA.

What is the takeaway?  If you are a California employer determining whether you might be covered as a California jointemployer under the CFRA, be aware that that determination may be used not only in the California leave of absence context, but also in the federal wage and hour context, including class actions.  Accordingly, if you are unclear whether you may be a joint employer for CFRA purposes, it is advisable to check your analysis, and your exposure, on this issue with your employment law counsel.