Solicitor of Labor Patricia Smith likes to quip that the Department is “working overtime on overtime.”  DOL took a break from the much-anticipated overtime regulations and issued new guidance yesterday on the question of who qualifies as a “joint employer” under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).  The guidance (Administrator’s Interpretation (AI) No. 2016-1) issued by Wage and Hour Division (WHD) Administrator Dr. David Weil, sets forth a broad (and sometimes ambiguous) reading of statutory provisions, regulations, and case law to address joint employment issues under the two statutes.  The guidance was not unexpected as some advocates have been asking for the DOL’s position on joint employment since the NLRB’s expansion of joint employment in Browning-Ferris, 362 NLRB No. 186 (Aug. 27, 2015).  While both the DOL and the NLRB agree that the FLSA’s economic realities test is broader than the test applied by the NLRB, DOL’s new guidance signals added focus by the government on this issue.  Joint employment matters greatly not only because each employer may be jointly and severally liable for violations but employees’ hours may be combined for both employers for overtime purposes.  These lurking liabilities make it more important than ever that employers pay attention to these complex issues.

Background on Joint Employment

Businesses are increasingly changing their staffing models by relying on independent contractors, staffing agencies, or third-party management companies.  Administrator Weil, as an academic, has written extensively on this issue dubbing it the “fissured workplace.”  The AI seeks to extend the government’s reach over all the players in the employment market.  However, the AI, through its use of examples, reflects DOL’s continued focus on lower-level restaurant and construction workers rather than recognizing modern workplace arrangements in office settings or newer “gig economy” models.

Two Joint Employment Scenarios: Horizontal and Vertical

The AI begins by distinguishing two common joint employment scenarios:

“Horizontal” joint employment focuses on separate but related companies and exists when the employee has an employment relationship with two or more employers, and those employers are sufficiently related (e.g., separate restaurants with economic ties or common managers). “Vertical” joint employment centers on the economic realities of the relationship between the employee and the potential joint employer and exists when the employee has an employment relationship with one employer (such a staffing agency or subcontractor), but economic realities show that he or she is economically dependent upon another entity.

Horizontal Joint Employers

The discussion on horizontal joint employment attempts to guide employers on what type of related companies may be considered joint employers for purposes of the FLSA and MSPA. The AI focuses on the existing DOL regulations which find joint employment among companies where:

  1. Arrangements exist among employers to share the employee’s services;
  2. Where one employer acts (directly or indirectly) in the interest of another employer with respect to the employee; or
  3. Where 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.” 29 C.F.R. 791.2(b).

Expanding on the factors, the AI lists nine factors describing the indicia of interrelationships which may indicate horizontal joint employment including overlapping officers and directors, joint control over human resources and labor relations function and joint supervision. Further, the AI recognizes that clearly separate entities with no connection (i.e. a high school and a standardized testing prep company employing the same teacher) will not be considered joint employers.

Vertical Joint Employers

The AI notes that before engaging in the joint employment analysis, it is important to ask whether the intermediary employer (e.g., the subcontractor or labor provider) is actually an employee of the putative joint employer.  If so, that ends the analysis, and all of the intermediary’s workers will also be employees of the higher-tier contractor/joint employer.  Once it has been determined that the intermediary is not an employee (as would often be the case with corporate entities providing labor or performing subcontracting work), WHD would then engage in the vertical joint employment analysis.

The AI list seven factors from the MSPA regulations to determine whether the requisite economic dependency exists for vertical joint employment purposes.  The seven factors are:

  • Whether the potential joint employer directs, controls or supervises the work performed.
  • Whether the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control (even if indirect) indicates that the employee is economically dependent on the potential joint employer;
  • Whether the potential joint employer had an indefinite, permanent, full-time, or long-term relationship with the subject employee(s);
  • Whether the joint employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training.
  • Whether the employee’s work is an integral part of the potential joint employer’s business;
  • Where the work is performed on premises owned or controlled by the potential joint employer indicates that the employee is economically dependent on the potential joint employer; and
  • Whether common HR or labor relations functions exist.

Legal and Practical Concerns with AI

Since the AI is guidance and not a law or regulation, it is not binding on the courts and is likely to be challenged by employers.  In fact, the AI on its own accord recognizes that some circuit courts including the First and Third Circuits do not agree with the broad FLSA economic realities test.  In addition, the cases on which the AI rely are either factually dissimilar to most workplaces or do not particularly provide guidance on complex employment relationships facing most employers.

Practically, the guidance does not update the existing standards or shed much light on how modern workplaces may be considered for joint employment purposes.  Several questions remain: Are staffing companies who merely supply workers to companies joint employers?  Are companies at risk of joint employment liability if they hire employee to provide discrete tasks on a periodic bases?  What is the precise amount of supervision allowed before joint employment attaches?

These open questions and others make it important that employers continue to look at their corporate and contractual relationships as they relate to their staff.  WHD investigators will be armed with the AI and looking to enlarge their cases by bringing more employers into the fold.  Not only could this result in unexpected FLSA liability but also being responsible for overtime related to work that an employer did not control.