In November 2019, three federal agencies—the Department of Labor (DOL), National Labor Relations Board (NLRB), and Equal Employment Opportunity Commission (EEOC)—announced plans to introduce revised joint employer rules. The DOL’s new rule will take effect on March 16, 2020, and the NLRB’s rule is set to go into effect April 27, 2020. The EEOC has not issued its new rule yet. While the rules from these three agencies are intended to clarify how to determine joint employer status and are expected to be compatible with one another, employers should be aware of nuances. Additionally, there are a plethora of state and local laws and rulings that could impact joint employer status.
What is a “joint employer?” Consider an example: ABC Company hires 123 Janitors to provide cleaning services. ABC agrees to pay 123 a fixed fee for the services. Months later, a 123 employee brings a wage and hour complaint. ABC is surprised to learn that they are a part of the complaint and that they could be equally responsible for the employee’s back wages and other damages. This is because ABC may be considered a “joint employer.”
Joint employment can occur in several scenarios. Our focus in this article will be about the relationship between ABC and 123, where an employee works one job and one set of hours that benefit an entity or person other than the employer–a potential second employer.
Like ABC, most companies do not operate in a silo—they have vendors, contractors and other partners. Companies must act with caution when structuring and implementing relationships with another entity’s employees. Failure to do so may result in joint employment, which means the company is responsible for minimum wages, overtime, and other obligations for workers that they did not even realize were their employees. Damages can add up quickly. Therefore, companies, and individuals, should carefully evaluate whether they created a “joint employer” status.
Department of Labor’s Four-Factor Test
On January 12, 2020, the Department of Labor (DOL) announced its new Joint Employer Part 791 Final Rule. The Rule, which goes into effect on March 16, 2020, provides guidance on how joint employer status shall be evaluated to clarify when individuals or entities are to be considered joint employers under the FLSA.
In determining if a prospective employer is a joint employer, the DOL looks to see if they “simultaneously benefit” from the work of the employee and if the prospective employer “is acting directly or indirectly in the interest of the employer in relation to the employee.” Simply put, the DOL examines whether the prospective employer behaves like an employer.
The DOL’s Final Rule lays out a four-factor balancing test to evaluate employer-like behavior. If the prospective employer either directly or indirect participates in a majority of these activities or one activity unequally, they will likely be considered a joint employer.
The four-factor balancing test assesses whether the potential joint employer:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records. “Employment records” are the types of records that evidence the potential employer’s activities in the other three factors, such as maintaining payroll records.
It is important to note that the prospective employer must actually engage in the above factors, either directly or indirectly. The rule also addresses several factors that do not impact joint employer status. Significantly, the rule states that the use of the franchisee model does not mean that a franchisor is more likely to be the joint employer of its franchisee’s employees.
National Labor Relations Board Rule Requires Direct and Immediate Control
On February 26, 2020, the National Labor Relations Board (NLRB) issued its final rule, which goes into effect on April 27, 2020, for determining joint employer status under the National Labor Relations Act (NLRA). The rule restores the standard that the NLRB applied from 1984-2015–evidence of direct and immediate control is required to prove that is a business is a joint employer. In 2015, temporarily changed this standard, permitting a business to be considered a joint employer, even if its control over employee working conditions was indirect, limited, or contractually reserved but never exercised.
In order to be considered a joint employer under the new NLRB rule, a business must possess and exercise substantial, direct and immediate control over one or more essential terms and conditions of employment of another employer’s employees. The rule provides an exhaustive list of essential terms and conditions of employment, including the following:
- Hours of work
Application of the New Rules
Now that we know more about joint employment under the rules, let’s revisit ABC and 123 to see if ABC might be a joint employer. **
- An ABC official provides general instructions to the 123 team leader regarding the tasks that need to be completed each workday. The 123 team leader provides detailed supervision to 123’s employees.
This is permissible. ABC will not be considered as a joint employer, as ABC is not exercising substantial supervision or control over 123’s employees.
- An ABC official oversees the work of 123 employees by assigning them specific tasks throughout each day, providing them with hands-on instructions, and keeping records tracking the work hours of each employee.
ABC will likely be considered a joint employer. Any contract provisions are not relevant–ABC’s actions are. The ABC official exercises sufficient control, both direct and indirect, over the terms and conditions of employment. The regular, direct supervision and employment records will weigh heavily in favor of a joint employer determination.
- At ABC’s request, 123 decides to terminate a 123 employee for failure to follow ABC’s instructions regarding customer safety.
ABC can require 123 to provide guarantees that employees will follow certain safety policies. Since ABC did not make the decisions regarding the termination, this will not likely make them a joint employer.
- ABC continues to request that 123 hire or terminate 123 employees, and 123 agrees without question each time.
Unlike the scenario above, where 123 made the decision to terminate after due consideration and based upon a permissible restriction, the repeated and unquestioned acquiescence to the hiring and firing requests indicates that ABC exercises indirect control over 123’s hiring and firing decisions. This decision-making authority and exercise of the same likely makes ABC a joint employer.
**These examples are modifications from those provided in the DOL Rule.
By identifying the various factors that make joint employer more or less likely under the new rules, the agencies aim to bring clarity and consistency. It is important for employers and their associated partners to not only evaluate agreements, but the actual day-to-day operations of their arrangement, as the new rules focus on what activities the companies are actually engaged in, or refrained from, when determining joint employment.