An Overview of the DOL’s Proposed Joint Employment Rule

In this edition of Regulatory Spring, we turn to the DOL’s third and final proposed rulemaking of early 2019: a new standard for joint employment under the FLSA. This week, we offer an overview of the rule that the DOL has proposed. In a later installment, we will provide a short survey for you to share feedback on the rule. Of course, we always welcome you to reach out to us directly with feedback or questions by emailing us at [email protected].

To put it mildly, the DOL’s proposed joint employment rule—if adopted—should provide welcome clarity for many businesses. This is particularly true for those most targeted by joint employment litigation, such as franchisors, staffing agencies, and businesses with subsidiaries or affiliates.

With its proposed rule, the DOL endeavors to undertake formal rulemaking and establish a clear, four-factor test for determining whether an entity is a joint employer. The four factors include whether the potential joint employer exercises the power to:

  • Hire or fire the employee;
  • Supervise and control the employee’s work schedules or conditions of employment;
  • Determine the employee’s rate and method of payment; and
  • Maintain the employee’s employment records.

The proposed rule is notable not just for the factors it deems relevant, but also—if not more so—for the factors that it deems not relevant:

  1. In sharp disagreement with the prior administration’s view of the joint employment standard, the proposed rule slams the door on economic dependence as a factor for joint employment. Considerations that fall into this category include, for example, whether the employee is in a job requiring special skill or has the opportunity for profit or loss based on his or her managerial skill.
  2. According to the DOL, the “ability, power, or reserved contractual right to act with respect to the employee’s terms and conditions of employment would not be relevant to that person’s joint employer status under the Act.” Instead, only actions actually taken would matter.
  3. An entity’s business model (e.g., a franchise model), certain business practices (e.g., allowing an employer to operate on the entity’s premises), and certain agreements (e.g., requiring an employer to institute a code of conduct) do not move the joint employment needle.

The proposed rule also includes a set of hypothetical examples that are aimed to help illustrate the contours of the rule. The examples include, but are not limited to:

  • An office park that hires a janitorial services company to clean after-hours. The park pays the company a fixed fee and reserves the right to supervise the janitorial employees. Office park personnel do not set the janitorial employees’ schedules and, in fact, do not supervise the janitorial employees. Outcome: the office park is not a joint employer of the janitorial employees.
  • An individual works 30 hours per week as a cook at one restaurant, and 15 hours/week at a different restaurant affiliated with the same nationwide franchise. The restaurants are locally owned and managed by different franchisees that do not coordinate in any way with respect to the employee. Outcome: the restaurants are not joint employers of the cook.
  • A franchise owns a hotel and is a licensee of a global franchisor’s brand. The franchisor-brand provides the hotel with samples of an employment application, employee handbook, and other forms and documents for use in operating the franchise. The licensing agreement is an “industry-standard” document explaining that the franchisee is solely responsible for daily operations, including hiring/firing, setting pay rates, maintaining records, and supervising the work. Outcome: the global franchisor is not a joint employer of the hotel’s employees.
  • A packaging company requests workers on a daily basis from a staffing agency. The packaging company determines each worker’s rate of pay, supervises them, and analyzes customer demand in detail to continuously adjust their daily schedules. Outcome: the packaging company is a joint employer.

It is important to remember that the proposed rule is focused on joint employment under the FLSA. It does not touch upon joint employment under other federal laws or any state laws.