Last July, the U.S. Department of Labor (DOL) declared that, for purposes of the Fair Labor Standards Act (FLSA), it presumes that workers are employees entitled to the protections of the FLSA. Additionally, anyone who is retained to provide services as an independent contractor is presumed to have been misclassified. (DOL Administrator's Interpretation No. 2015-1, issued July 15, 2015). Administrator David Weil is off to a fast start for 2016, having issued his first Interpretation for the year on January 20, 2016, on the subject of Joint Employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Once again, in furtherance of its goal to ensure that workers receive the protections of the FLSA, the DOL has put employers on notice that it will utilize various approaches to find two or more companies liable as joint employers.
According to the DOL, the proliferation of business models and arrangements has made joint employer situations more common. For example, a company may engage workers through a staffing agency or enter into a subcontract agreement for housekeeping services. In every situation where there are two or more employers involved, the DOL will look to find whether "horizontal" or "vertical" joint employment exists. Where joint employment exists, all of the joint employers are jointly and severally liable for compliance under the FLSA and MSPA, meaning that each joint employer is individually responsible for the entire amount of wages, and all of the hours worked by the employee will be aggregated and considered as one employment for purposes of calculating overtime pay.
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. In determining whether a horizontal joint employment exists, the focus is on the relationship between the two (or more) employers. The DOL provides an example of a horizontal joint employment situation where a nurse works 25 hours at one nursing home and 25 hours at another nursing home in the same week. The two nursing homes would be found to be joint employers if (1) the employers agree to share or interchange the employee's services; (2) one employer acts directly or indirectly in the interest of another employer in relation to the employee; or (3) the employers are associated "with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer." If the nursing homes are deemed joint employers, the nurse's hours would be aggregated and she would be entitled to 40 hours of pay at the regular rate and 10 hours at an overtime rate, and both companies would be liable for the amounts due.
Vertical joint employment, on the other hand, occurs where a company (the potential joint employer) contracts with an intermediary employer, like a staffing agency or other labor provider, to provide labor or to provide certain services. The focus in a vertical joint employment situation is on the relationship between the worker and the potential joint employer. This is consistent with the DOL's position that the economic realities of the worker's relationship with the employer are the test of employment.
The most startling proposition by the DOL is its statement that "[a] threshold question in a vertical joint employment case is whether the intermediary employer (who may simply be an individual responsible for providing labor) is actually an employee of the potential joint employer." If this threshold question is met, a vertical joint employment exists, and there is no need to conduct a vertical joint employment analysis. In effect, if the intermediary employer is an employee of the potential joint employer, then all of the intermediary employer's employees are employees of the potential joint employer too, and there is no need to conduct further analysis. This proposition by the DOL is surprising because it means that the potential liability of misclassifying an employee as an independent contractor has suddenly increased exponentially.
Now, more than ever, it is imperative that employers consult with legal counsel and not casually enter into engagements with third parties for the provision of services, relying on contract language and past practices to protect them from being held liable under the FLSA as a joint employer.