On January 12, 2019, the U.S. Department of Labor (DOL) finalized its makeover of the joint employer rule. Many employers try to avoid joint employer relationships because, among other things, joint employers are jointly and severally liable for one another's wage-and-hour violations. As we previously wrote here, the new rule is expected to substantially narrow the joint employer definition and add clarity about the circumstances under which two parties will be considered joint employers.

The final rule is mostly the same as the proposed rule issued last year. Under the new rule, a person or entity will be considered a joint employer if that person or entity "is acting directly or indirectly in the interest of an employer in relation to the employee." To determine whether a person or entity meets this requirement, the DOL will impose a four-factor test:

  1. Does the person or entity hire or fire the employee?
  2. Does the person or entity supervise and control the employee's work schedule or conditions of employment?
  3. Does the person or entity determine the employee's rate and method of pay?
  4. Does the person or entity maintain the employee's employment records?

The new rule becomes effective March 16, 2020 and is important for several reasons. First, a party's mere reservation of rights to supervise or control an employee's conditions of employment will no longer necessarily mean that party is a joint employer. Second, actual exercise of control for at least one of the DOL's factors will be required for a joint employer determination. And third, satisfaction of the fourth factor – maintaining an employee's employment records – will no longer be enough by itself to render a party a joint employer.

The new joint employer standards will be particularly important for franchisor-franchisee relationships, portfolio member companies, and employers that often rely upon staffing agency services. Employers may want to consider how to modify their relevant service agreements in order to take advantage of the DOL's new joint employer rule.