The U.S. Department of Labor (DOL) recently announced a proposed rule that would clarify when joint employment exists and, in turn, the responsibilities of “joint employers” to pay employees minimum wages and overtime premiums under the Fair Labor Standards Act (FLSA).

The proposed rule, announced April 1, 2019, aims to ensure that employers and joint employers clearly understand their responsibilities to pay employees at least the minimum wage for all hours worked, and an overtime premium of time and one-half for all hours worked over 40 in a workweek, according to the DOL.

“The proposed changes would provide courts with a clearer method for determining joint employer status, promote greater uniformity among court decisions, and reduce litigation,” said Acting DOL Administrator Keith Sonderling in a statement.

The DOL rule proposal includes a four-factor test, drawn from court precedent, that focuses on the control that an employer and potential joint-employer have over employees. The four-factor test looks at whether the potential joint employer actually 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.3

For example, under the proposed rule, the following situation is one involving joint employment: A cook who works 30 hours per week at one restaurant, and 15 hours per week at a different restaurant owned by the same person, is jointly employed by both restaurants if the restaurants coordinate the cook’s schedule at each location and decide together to pay the cook the same hourly rate.

As another example, the following situation would not involve joint employment under the proposed rule: A cook works 30 hours per week at one restaurant, and 15 hours per 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 cook. There is no joint employment.

Impact on Employers In 2017, the DOL withdrew Obama-era guidance that expanded joint-employment liability for businesses, and the DOL’s recent proposal goes the next step to codify a narrower rule in federal regulations. What does the proposed new rule mean for employers? If adopted, the rule is intended to increase certainty over what business practices result in liability as a “joint employer.”

This is particularly important for staffing agencies, franchisors and franchisees, and independent contractors, including general and sub-contractors. Hours that employees work at one establishment are totaled with hours worked at a joint-employer’s establishment for purposes of determining whether overtime and minimum wage obligations have been met.