Significantly, this change would remove the threat of businesses being deemed joint employers solely because they have the right to control a worker; the proposed rule instead focuses on the entity’s actual exercise of control over the worker.
On April 1, 2019, the U.S. Department of Labor (DOL) announced that it will publish a notice of proposed rulemaking (NPRM) to update and clarify the responsibilities of joint employers under the Fair Labor Standards Act (FLSA). The DOL has not meaningfully revised its joint employer regulation, 29 C.F.R. Part 791, since 1958. The proposed rule follows the DOL’s 2017 withdrawal of an “Administrator Interpretation” issued during the Obama administration in 2016, which had provided more “employee friendly” guidance on the joint employer standard under the FLSA. If adopted, the proposed rule should mean that fewer businesses will be considered joint employers for the purposes of the FLSA, thereby reducing the risk of joint and several liability in modern employment arrangements, including staffing agencies and franchisors. Once the NPRM is published in the Federal Register, the public will have 60 days to comment on the proposed rule.
Key Aspects of the Proposed Rule
The DOL has proposed a number of revisions to the current regulation for joint employer status under the FLSA.
Most notably, the proposed rule eliminates the “not completely disassociated” standard. This standard is set forth in the current regulations (29 C.F.R. § 791.2) as follows:
If all the relevant facts establish that two or more employers are acting entirely independently of each other and are completely disassociated with respect to the employment of a particular employee, who during the same workweek performs work for more than one employer, each employer may disregard all work performed by the employee for the other employer (or employers) in determining his own responsibilities under the [FLSA]. On the other hand, if the facts establish that the employee is employed jointly by two or more employers, i.e., that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee’s work for all of the joint employers during the workweek is considered as one employment for purposes of the [FLSA].
In place of the “not completely dissociated” standard, the DOL now proposes a four-factor test derived from the standard set forth in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). The proposed four-factor test analyzes whether the entity actually exercises the power to: (1) hire or fire an employee; (2) supervise and control an employee’s work schedules or employment conditions; (3) determine an employee’s rate and method of pay; and (4) maintain a worker’s employment records. The focus is on analyzing whether a potential joint employer should be held jointly and severally liable for employment claims. Significantly, this change would remove the threat of businesses being deemed joint employers solely because they have the right to control a worker; the proposed rule instead focuses on the entity’s actual exercise of control over the worker.
This shift from a focus on the right to control to a focus on the actual exercise of control mirrors the decision of the National Labor Relations Board (NLRB) in Hy-Brand Industrial Contractors, 365 NLRB No. 156 (2017). In Hy-Brand, the NLRB overruled an Obama-era NLRB decision in Browning-Ferris, 362 NLRB No. 186 (2015), and reinstated the prior joint employer standard that looks to the putative employer’s actual exercise of control over a worker (as opposed to the Browning-Ferris right to control standard). As we discussed in a prior Alert, however, the NLRB vacated its decision in Hy-Brand, and the Browning-Ferris “right to control” standard remains the joint employer standard under the National Labor Relations Act. In fall 2018, the NLRB proposed a new rule that would effectively adopt the standard set forth in the vacated Hy-Brand decision.
The DOL’s proposed rule further provides that factors other than those set forth in the four-part test may only be considered if they are indicative of whether the potential joint employer is: (1) exercising significant control over the terms and conditions of the employee’s work; or (2) otherwise acting in the interest of the employer in relation to the employee.
Importantly, the proposed rule also states that whether an employee is economically dependent on the potential joint employer is not relevant, and that certain “economic dependence” factors are not relevant to the joint employer analysis.
The proposed rule also provides examples of the kinds of business practices that should not, in and of themselves, result in joint employer liability. These practices include:
- Contracting with a staffing agency;
- Entering into a franchise arrangement, or giving a franchisee a sample handbook;
- Allowing an employer to operate a facility on the premises (i.e., a “store within a store”);
- Jointly participating in an apprenticeship program, health plan or retirement plan; or
- Requiring an employer, as part of a contract, to institute a certain wage, workplace safety practices or sexual harassment/nondiscrimination policies.
Finally, the proposed rule includes a series of nine examples in the form of factual scenarios to help clarify the application of the four-factor test.
What This Means for Employers
The DOL’s joint employer rule is only a proposal at this time and is subject to public comment and further revision, as well as potential legal challenges. However, if the rule becomes final, the updated regulations should provide employers with long-sought clarity on thorny issues involved in determining joint employer status under the FLSA.
Employers with contractor-subcontractor, franchise-franchisee, user-supplier and parent-subsidiary relationships should take particular note of the new proposed rule, but remember that for the time being, the current regulation remains in effect. The publication of the proposed rule also provides a timely reminder for employers to review their contracts with other entities to ensure, at a minimum, that the contract terms accurately reflect the business realities of the relationship.
It also is important to note that the DOL’s proposed rule only affects the joint employer standard applicable under the FLSA. The test for joint employer status may be different under other various federal and state laws, so employers evaluating potential joint employer exposure are cautioned not to rely on the DOL’s new standard (should it become final).
Finally, employers might also consider commenting on the proposed rule by visiting regulations.gov once the proposal is published in the Federal Register. In order to be considered, comments will need to be made within the 60 days following the proposed rule’s publication.