On January 12, 2020, the U.S. Department of Labor (DOL) published its final rule revising and updating its regulations interpreting “joint employer” status under the Fair Labor Standards Act (FLSA). The FLSA requires covered employers to pay their employees at least the federal minimum wage for every hour worked and overtime for every hour worked over 40 in a workweek. To be liable for paying minimum wage or overtime, an individual or entity must be an “employer,” which the FLSA broadly defines to include “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” In addition to his or her employer, an employee may have one or more joint employers, which is an individual or entity who is jointly and severally liable with the employer for the employee’s wages.

Scenarios Where Joint Employment Exists

The DOL recognizes two potential scenarios where an employee may have one or more joint employers:

  • The employee works for an employer, but another individual or entity simultaneously benefits from that work.
  • The employee works for one employer for one set of hours in a workweek and for another employer for a separate set of hours in the same workweek.

The final rule does not substantively change the second scenario: employers disassociated with respect to the employee’s employment may disregard work the employee performs for the other employer. If they share the employee’s services or share control of the employee, for example, they might be joint employers, requiring them to aggregate hours worked to determine FLSA liability.

New Balancing Test

The first scenario, however, changed dramatically with the adoption of a four-factor balancing test to determine if a second employer is considered a joint employer, analyzing whether the 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.

The analysis continues to be a fact-specific inquiry, with no one factor being determinative. Additional factors that demonstrate the exercise of significant control over the terms and conditions of the employee’s work may also be relevant, but the final rule also identifies certain factors that are not relevant to this determination (e.g., whether the employee is economically dependent on the potential joint employer, the existence of a franchise or brand and supply agreement, quality control agreements, sample handbooks and policies, and association health or retirement plans). The final rule also provides examples of how to apply the joint employer guidance in a variety of circumstances.

The rule becomes effective March 16, 2020. It is important to note, however, that although the rule will govern DOL enforcement going forward, it is not binding on courts. It is expected that the plaintiffs’ bar and worker advocacy groups will mount direct and indirect legal challenges to the rule in the months ahead. As with many other employment regulations, the outcome of the 2020 presidential election may also impact the joint employer landscape.