On January 20, 2016, the DOL issued Wage and Hour Division Administrator’s Interpretation 2016-1 (“AI”) providing that businesses that use employees of third parties may be considered “joint employers” of those workers for purposes of compliance with the FLSA. The genesis of the joint-employment AI is the DOL’s expectation that businesses may seek to avoid the high costs and potential liabilities of maintaining their own employee workforce.

Although this AI is less than a year old, there are longstanding federal regulations on joint employment stating that when the employee performs work that 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 where: (1) employers share an employee’s services, (2) one employer acts in the interest of the other employer in relation to the employee, or (3) one employer controls the other employer and therefore shares control of the other employer.

The DOL’s AI on joint employment goes far beyond the streamlined regulations in explaining the complex and comprehensive analysis to determine whether joint employment exists. To that end, the AI focuses on the DOL’s newly envisioned concepts of “horizontal” and “vertical” joint employment.

“Horizontal” Joint Employment

The DOL has explained that “horizontal” joint employment exists where an employee has employment relationships with two or more related or commonly owned businesses. In assessing horizontal joint employment, the DOL focuses on the relationship between the businesses, i.e., putative joint employers, but not the putative employee’s relationship between and among the putative joint employers. The DOL provides, as an example, a server who works for two different restaurants that are commonly owned.

To determine whether horizontal joint employment exists, the DOL considers the following eight criteria:

  1. Is there common ownership or management with respect to the putative joint employers?
  2. Do the putative joint employers have common officers, directors, executives, or directors?
  3. Do the putative joint employers share control over operations of both businesses?
  4. Are the operations of the putative joint employers’ businesses interrelated?
  5. Do the putative joint employers supervise the same employees?
  6. Do the putative joint employers treat employees as part of a pool available to both businesses?
  7. Do the putative joint employers share clients or customers?
  8. Do the putative joint employers maintain any agreements?

“Vertical” Joint Employment

The DOL has explained that “vertical” joint employment occurs when a worker employed by a third party enters into a work relationship with the putative joint employer. This arrangement commonly involves staffing agencies.

The AI states that in a vertical employment arrangement, the DOL considers the relationship between the putative joint employers and the worker. The DOL will first examine whether the worker’s direct employer, e.g., the staffing agency, is actually an employee of the putative joint employer. If such a relationship exists, then the DOL automatically finds joint employment.

If no such relationship exists, the DOL will then conduct an “economic realities” analysis to determine whether an employee of one business, e.g., the staffing agency, is economically dependent on another business that is the beneficiary of the services performed by the staffing agency’s employee. The AI provides the following economic realities criteria:

  • Directing, Controlling, or Supervising the Work Performed. To the extent that the work performed by the employee is controlled or supervised by the putative joint employer beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the putative joint employer. The potential joint employer’s control can be indirect and still be sufficient to indicate economic dependence by the employee.
  • Controlling Employment Conditions. To the extent that the putative joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control indicates that the employee is economically dependent on the putative joint employer.
  • Permanency and Duration of Relationship. An indefinite, permanent, full-time, or long-term relationship by the employee with the putative joint employer suggests economic dependence.
  • Repetitive Nature of Work. To the extent that the employee’s work for the putative joint employer is repetitive, relatively unskilled, or requires little or no training, such facts indicate that the employee is economically dependent on the putative joint employer.
  • Integral to Business. If the employee’s work is an integral part of the putative joint employer’s business, that fact indicates that the employee is economically dependent on the putative joint employer.
  • Work Performed on Premises. The employee’s performance of the work on premises owned or controlled by the putative joint employer indicates that the employee is economically dependent on the putative joint employer.
  • Performing Administrative Functions Commonly Performed by Employers. To the extent that the putative joint employer performs administrative functions for the employee—such as handling payroll; providing workers’ compensation insurance; providing necessary facilities and safety equipment, housing, or transportation; or supplying tools and materials required for the work—such facts indicate economic dependence by the employee on the putative joint employer.

A version of this article originally appeared in the Take 5 newsletter “Five Critical Wage and Hour Issues Impacting Employers.”