In its first major guidance of 2016, the U.S. Department of Labor (DOL) has issued a definition of joint-employer status under the Fair Labor Standards Act (FLSA) that is even broader than the definition of joint-employer status announced by the National Labor Relations Board last summer. Coupled with its late 2015 guidance on the misclassification of independent contractors, the DOL has greatly expanded the definition both of who is an employee and who is an employer.
Where joint employment exists, all of the joint employers are jointly and severally liable for compliance with, and violations of, the FLSA. Notably, in what is perhaps an indication that the DOL plans to apply its joint-employer definition in a fluid manner to achieve its goals, it states in its guidance that it “may consider joint employment to achieve statutory coverage, financial recovery, and future compliance.”
In its guidance, the DOL rejects as too narrow the common law right of control test for determining joint employment that is applied under certain other labor statutes. Instead, the DOL sets forth two types of joint employment: horizontal and vertical.
Horizontal joint employment may exist where “an employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee.” Examples of potential horizontal joint employment include (1) a server who is employed at two different locations of a restaurant brand operated by separate legal entities but whose schedule is coordinated by managers at each location; and (2) home health care providers that share staff and common management. The DOL states that it will consider the following factors when analyzing potential horizontal joint employers:
- Who owns the potential joint employers;
- Do the potential joint employers have any overlapping officers, directors executives, or managers;
- Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
- Are the potential joint employers’ operations intermingled (e.g., is there one administrative operation for both employers);
- Does one potential joint employer supervise the work of the other;
- Do the potential joint employers share supervisory authority for the employee;
- Do the potential joint employers share clients or customers; and
- Are there any agreements between the potential joint employers?
Vertical joint employment exists where an employee “has an employment relationship with one employer . . . and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” Examples of potential vertical joint employment include (1) nurses placed at a hospital by staffing agencies; and (2) warehouse workers contracted by their employer to perform services for another employer. The factors the DOL will consider when analyzing potential vertical joint employment are:
- The extent to which the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight;
- The extent to which the potential joint employer has the power to modify employment conditions;
- The permanency and duration of the relationship;
- The extent to which the employee’s work for the potential joint employer is repetitive or rote;
- Whether the employee’s work is an integral part of the potential joint employer’s business;
- Whether the employee performs the work on premises owned or controlled by the potential joint employer;
- The extent to which the potential joint employer performs administrative functions for the employee.
What is the likely result of the DOL’s issuance of this guidance? Whether, and to what extent, the courts apply the DOL’s joint-employment definition remains to be seen. Certainly the DOL will use it in its enforcement efforts. And Plaintiffs’ lawyers will likely rely on it to add additional employers and sources of recovery in wage and hour lawsuits.
What should employers do? Employers should review their employment relationships to determine if they have potential horizontal or vertical joint-employment relationships. If so, they should determine first whether they are comfortable being jointly and severally liable for wage and hour violations with the other joint employers. Where that answer is “no,” employers should then analyze whether and to what extent the factors the DOL considers in determining joint-employer relationships can be modified or restructured in the employer’s operations consistent with business need and economics. Employers should also consider, where appropriate, using written agreements requiring any potential joint employer to comply with all federal and state labor and employment statutes and containing an indemnification provision if the employer fails to do so.