Administrator David Weil of the U.S. Department of Labor’s Wage and Hour Division (“WHD”) recently issued an “Administrator’s Interpretation” setting forth the WHD’s view on how joint employer relationships are established under the Fair Labor Standards Act, 29 U.S.C. § 201, and the Migrant and Seasonal Agricultural Worker Protection Act, 29 U.S.C. § 1801 (Administrator’s Interpretation No. 2016-1, Jan. 20, 2016). The Interpretation was prompted by the increase nationally in the use of shared employees through third parties, such as management companies, staffing agencies and other labor providers, and is the latest installment in a series of rulings that have given employees who work (either directly or indirectly) for multiple entities greater leverage to argue that in addition to their direct employer, the entity involved only indirectly in their work also qualifies as their employer.

The Administrator’s Interpretation

According to the Administrator’s Interpretation, when two or more employers jointly employ an employee, the employee’s hours worked for all of the employers during the workweek are aggregated and considered as “one employment.” Each employer is jointly and severally liable for compliance with the law, including for the payment to non-exempt employees of premium pay for overtime hours. In conducting investigations and otherwise exercising its jurisdiction, the Administrator specified that the WHD will use joint employment to achieve statutory coverage, financial recovery and future compliance with the laws, as well as to hold all putative employers liable for their legal obligations.

The Interpretation explains that the WHD will focus on the relationship between the employers and the economic dependence of the worker on the putative joint employer (as measured by the economic realities of the work environment) to determine whether joint employment exists. The WHD will test these factors through one or both of the following prisms: horizontal joint employment or vertical joint employment.

  • Horizontal joint employment exists where an employee has direct relationships with two or more employers and the employers are “sufficiently associated or related” to each other with respect to the employee to warrant a finding of joint employment. In a horizontal joint employment scenario, there is usually an established or admitted employment relationship between the employee and each of the employers at issue. Horizontal joint employment generally will be found to exist in situations where the employers share or interchange the employee’s services. Examples of this arrangement typically include separate restaurants that are commonly owned or controlled and have the same managers controlling both restaurants and which share wait staff between them, or healthcare providers that share staff and have common management. However, horizontal joint employment does not exist if the employers act entirely independently of each other or are completely disassociated with each other with respect to the employee.
  • Vertical joint employment occurs where an employee has an employment relationship with one employer (such as a staffing agency, contractor or other labor provider) but the economic realities of the employee’s work show that the employee is economically dependent on another entity “involved in” the work. In evaluating the economic realities, the following factors may be relevant to show economic dependence:
  1. the putative joint employer’s ability to direct, control or supervise the work performed;
  2. the putative joint employer’s control over employment conditions (such as hiring, firing and role in determining the employee’s rate of pay);
  3. the permanency and duration of the relationship;
  4. whether the work is repetitive and rote rather than skilled;
  5. whether the work is integral to the putative joint employer’s business;
  6. whether the work is performed on the putative joint employer’s premises; and
  7. the putative joint employer’s performance of administrative functions, such as payroll, workers’ compensation insurance, equipment, housing or transportation. 

In vertical joint employment, it is typical that the intermediary employer (the one that employs the individual directly) has a contract or other arrangement with the entity that receives the direct benefit of the employee’s work. It is important to note, however, that any such contract between the two entities is not determinative of the joint employment question; rather, it is the economic realities that govern. Examples of vertical joint employment could include construction workers who work directly for a subcontractor but the economic realities demonstrate the general contractor is sufficiently involved in affecting the direct employer’s employees, or farm workers employed by a farm labor contractor to pick produce on a grower’s farm where the grower dictates the timing of the harvest, which fields the workers harvest and the daily schedule each day, as well as provides the necessary training and equipment. 

Application of the Joint Employer Concept in Other Contexts

It is important to note that the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act (the only two laws to which the WHD Interpretation applies) are not the only federal laws under which an entity could be liable under a joint employment theory. For example:

  • Discrimination Laws: An entity may be jointly liable for adverse actions under various federal, state and local laws, such as Title VII of the Civil Rights Act of 1964, which prevents discrimination on the basis of race, sex, ethnicity, color, religion or national origin, and under the Americans with Disabilities Act of 1990, which prevents discrimination on the basis of disability and imposes various accommodation requirements. Depending on the jurisdiction, the test might focus on determining which entity “controls” the individual but also could involve an analysis of the “economic realities” of the employment relationship. The Administrator’s Interpretation clarifies that, under the laws the WHD administers, “control” is never by itself solely determinative of a joint employment relationship.
  • Occupational Safety and Health Administration (“OSHA”): An internal memorandum from OSHA obtained by the International Franchise Association in August states the agency may find a joint employment relationship between a franchisor and a franchisee based on the relationship between the entities with respect to the terms and conditions of employment.
  • National Labor Relations Board (“NLRB”): This WHD Interpretation comes on the heels of an August 2015 decision of the NLRB, under the National Labor Relations Act (which applies to both unionized and non-unionized employees) in which the NLRB ruled that “joint employment” is determined based upon application of the “right of control test”—whether the putative joint employer shares or codetermines those matters governing the employees’ terms and conditions of employment. In doing so, the NLRB expanded the joint employer doctrine to cover those situations where the putative employer possesses the mere “right to control” the employee, even if that employer does not actually exercise such control. We reported on the Browning-Ferris Industries of California, Inc. (362 NLRB No. 186, Aug. 27, 2015) decision in a prior Duane Morris Alert. Similar to OSHA, the NLRB also intends to consider the circumstances under which its joint employer doctrine should apply to franchisor/franchisee relationships.

What This Means for Employers

Courts and government agencies are moving toward giving employees multiple employers to sue in pursuing claims under a variety of federal and state employment laws. While the Administrator’s Interpretation is not by itself a seismic shift in the joint employer landscape, it is a significant contribution to the emerging trend of which employers should be aware—namely, that “indirect” employers of employees may be “on the hook” for conduct by the employees’ direct employer, including responsibility for the payment of unpaid minimum or overtime wages; back pay in cases involving wrongful termination and discrimination; contributions to pension and health funds; and damages for health and safety law violations. The indirect employer may also be required to participate, with the direct employer, in collective bargaining relating to the direct employer’s employees. Entities that utilize contractors, staffing firms and other providers of temporary or ongoing labor should take notice of this trend and seek guidance from their legal counsel in light of these developments in structuring their agreements, arrangements and practices with their business partners accordingly. Firms that provide temporary labor to other entities as part of their business model should be aware that their customers may become increasingly sensitive to joint employer risks.