On January 20, 2016, the Wage and Hour Division of the U.S. Department of Labor (DOL) issued an Administrative Interpretation setting forth guidance for when businesses will be deemed “joint employers” under the Fair Labor Standards Act. A copy of DOL’s Administrative Interpretation No. 2016-1 (the “Interpretation”) is attached here for your reference.
The Interpretation makes abundantly clear to businesses that share employees or use contractors or temporary staffing agencies that they may be deemed “joint employers” and become legally responsible for any wage and hour violations committed by the other joint business. The Interpretation goes on to explain two types of joint employment scenarios – “horizontal” joint employment and “vertical” joint employment.
Horizontal Joint Employment
Horizontal joint employment, according to the DOL, refers to situations where two or more entities jointly use the same employees. This would occur, for example, if employees work for two or more businesses that have common ownership and joint control over the employees. The factors considered by the DOL as to whether two entities meet the horizontal joint employment test include, but are not limited to: (1) common owners or managers, (2) coordination of hours, scheduling and business operations, (3) shared control over hiring, firing and other personnel decisions, (4) joint supervision of employees, and (5) use of similar systems, such as the same payroll system. Therefore, by way of illustration, if an employee works 35 hours at restaurant A and 15 hours at restaurant B (and both restaurants are commonly owned), the employee can jointly sue both restaurant A and restaurant B for 10 hours of overtime in the event the employee is not properly paid overtime wages.
Vertical Joint Employment
Vertical joint employment exists when a worker has an employment relationship with one employer, such as a staffing agency or subcontractor, and the facts demonstrate that the worker is “economically dependent” by another, separate entity. An example cited by the DOL in the Interpretation of a vertical joint employment relationship involves a hotel that retains a staffing agency to provide daily custodial services, both of which are directing the staffing agency workers in some fashion. The facts considered by the DOL in evaluating whether entities meet the vertical joint employment test include, but are not limited to: (1) the degree of direction, control and supervision of the work performed, (2) the permanency and duration of the relationship, (3) the repetitive and rote nature of the work, (4) whether the service provided is an integral function, and (5) the location of where the work is performed.
The DOL is the latest of a number of federal agencies issuing guidance on the issue of joint employer liability. Just recently, in 2015, the National Labor Relations Board ruled in Browning-Ferris Industries, 2015 NLRB LEXIS 672 (2015) (click here for link to my prior blog post on this case) that, under the National Labor Relations Act, a company and its contractor can be deemed to be joint employers even when the company did not exercise direct control over its contractors. Similarly, the U.S. Occupational Health and Safety Administration has invoked joint employer arguments to assert safety violations against franchisors and their franchisees. Moreover, almost every day, more FLSA lawsuits are filed against purported joint employers – such as franchisors and franchisees – under joint employer theories seeking to impose liability for purported federal and state wage and hour violations.
While the DOL asserts that its Interpretation does not constitute a policy change, it is clear that the Interpretation, and the DOL’s view on the joint employer standard, will put many companies in the crosshairs of the DOL and at greater risk for minimum wage and overtime violations under the FLSA, especially those companies that rely on staffing firms and contractors.