On January 20, 2016, the Department of Labor (DOL) released an Administrator’s Interpretation regarding joint employment under the Fair Labor Standards Act (FLSA). Joint employment exists when two or more employers employ a single person and each is responsible to the employee for compliance with the FLSA. Generally, the DOL releases Administrator’s Interpretations to provide the business community with formal guidance regarding the agency’s position on a regulatory issue.
Below are four important things to know about the DOL’s new guidance:
- The FLSA broadly defines employment. The DOL notes that the definition of “employment” under the FLSA is “the broadest definition that has ever been included in any one act.” It is thus possible that an employee can have two or more employers for the work that he or she is performing. When joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA. Also, when two or more employers jointly employ an employee, the employee’s hours worked are aggregated and considered as one employment for purposes of calculating whether overtime pay is due.
- Joint employment comes in two types. The DOL differentiates between two kinds of joint employment: “horizontal” and “vertical.” Horizontal joint employment exists where an employee has employment relationships with two or more separate, but related employers. For example, a waiter might be jointly employed by two restaurants operated by the same owner. In determining whether two entities are horizontal joint employers, the DOL considers factors such as common ownership, overlapping management, intermingling of operations, and shared control over things like hiring, firing, and payroll. Vertical joint employment occurs where the employee has an employment relationship with one employer, but the employee is economically dependent upon another entity. For example, a construction laborer might be jointly employed by a subcontractor and general contractor. The DOL uses an “economic realities” test in determining vertical employment, considering such factors as the ability of the joint employer to direct the work and to control employment conditions (hiring, firing, pay, etc.).
- Joint employment is increasing. According to the DOL, joint employment is becoming more common. More businesses are changing their organizational and staffing models by sharing employees or using staffing agencies, independent contractors, and third-party management companies. In view of these trends, the DOL released the Administrator’s Interpretation to explain its position on joint employment and assist the business community in complying with the FLSA.
- The DOL is targeting joint employers. The DOL’s release of this Interpretation signals that the agency will be closely scrutinizing these relationships in the future. The DOL will likely use the concept of joint employment to expand FLSA coverage and ensure recovery of back wages. The Interpretation notes that joint employment is most common in the construction, agricultural, janitorial, distribution and logistics, staffing, and hospitality industries. Expect the DOL to target employers in these industries, in particular. Nonetheless, it is important for all employers to consider whether the DOL might hold them accountable as a joint employer.