Why it matters

In a new Administrator's Interpretation, the Department of Labor (DOL) has adopted an incredibly broad test for joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The guidance—accompanied by a Question and Answer document and a new fact sheet—"ensures that the scope of employment relationships and joint employment under the FLSA and the MSPA is as broad as possible," the agency emphasized. In the current workplace, "there is increasingly the possibility that more than one employer is benefiting" from an employee's work, the DOL explained, highlighting industries such as construction, staffing, hospitality, healthcare, agriculture, and janitorial. The new standard uses the FLSA's expansive definition of "employ" as "to suffer or permit to work" and rejects the common-law right of control standard. Joint employment relationships can be either horizontal—when two or more employers each separately employ a worker and are sufficiently associated with or related to each other with respect to the employee—or vertical, where the employee of the intermediary employer is also employed by another employer. Employers would be well-served to familiarize themselves with the guidance to avoid an enforcement action from the DOL, which noted that it "will continue to consider the possibility of joint employment to ensure that all responsible employers are aware of their obligations and to ensure compliance with the FLSA and MSPA," to further the remedial purpose of the statutes.

Detailed discussion

Recently, the Department of Labor's (DOL) Wage and Hour Division (WHD) has encountered an increase of joint employment scenarios, prompting the agency to issue Administrator's Interpretation No. 2016-1 (AI). Situations where more than one business is involved in the work being performed and where workers have two or more employers are increasingly common, the agency noted, with the sharing of employees, third-party management companies, independent contractors, staffing agencies, or labor providers.

With joint employment more common, the DOL felt the need to provide additional guidance on employees' rights and employers' obligations under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). "When two or more employers jointly employ an employee, the employee's hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due," according to the guidance. "Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA."

Further, where one joint employer is larger and more established, with a greater ability to implement policy or systemic changes to ensure compliance, "WHD may consider joint employment to achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations."

The DOL emphasized that the concept of joint employment—like employment generally under the FLSA's "to suffer or permit to work" standard—should be interpreted as broadly as possible. However, not every subcontractor or labor provider relationship will result in joint employment. To give employers a better grasp on what the DOL considers to be a joint employment relationship, the AI set forth two concepts: horizontal joint employment and vertical joint employment.

"Horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee," the DOL said, with the analysis focused on the relationship between the employers.

Examples of horizontal joint employment may include separate restaurants that share economic ties and have the same managers controlling both restaurants, or home healthcare providers that share staff and have common management. Relevant factors when analyzing the degree of association between, and sharing of control by, potential joint employers include whether the employers have any overlapping officers, directors, executives, or managers; if the operations are intermingled; whether the employers share control over operations (such as hiring, firing, or advertising); and who owns the employers.

"In sum, the focus of the horizontal joint employment analysis is the degree of association between the two potential joint employers even if they are formally separate legal entities and the degree to which they share control of the employee," the DOL said.

So where an employee works at two locations of the same restaurant brand, where the managers share the employee and jointly coordinate her scheduling, use the same payroll processor, and share supervisory authority (and where the same individual is the majority owner of both locations, even though they are operated by separate legal entities), the facts are indicative of joint employment.

Alternatively, vertical joint employment examines the economic realities of the working relationship between the employee and the potential joint employer and exists "where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work."

A common vertical joint employment relationship can be found where a construction worker who works for a subcontractor is also employed by the general contractor, or a farmworker who works for a farm labor contractor is also employed by the grower. Typically, a contract or other arrangement will be present between the intermediary employer and the potential joint employer, the DOL added.

Seven economic reality factors (found in the MSPA regulations) can help guide the determination of whether a vertical joint employment relationship exists, with consideration of the directing, controlling, or supervising of the work performed; which party controls the employment conditions; the permanency and duration of relationship; the repetitive and rote nature of work; whether the work is integral to business; if the work is performed on the premises; and the performance of administrative functions commonly performed by employers.

The DOL provided examples of vertical joint employment, including a worker hired by a farm labor contractor to pick produce on a farm. Although the contractor hired and pays the worker, the grower dictates the timing of the harvest, which fields are to be harvested, and the schedule for each day. Any training for the work (which is generally unskilled) is provided by the grower, who keeps track of the amount of produce picked and provides the buckets and transportation. The grower pays the contractor but withholds money to cover workers' compensation. These facts are indicative of joint employment of the worker, the agency said.

"As a result of continual changes in the structure of workplaces, the possibility that a worker is jointly employed by two or more employers has become more common in recent years," the AI concluded. "In an effort to ensure that workers receive the protections to which they are entitled and that employers understand their legal obligations, the possibility of joint employment should be regularly considered in FLSA and MSPA cases, particularly where (1) the employee works for two employers who are associated or related in some way with respect to the employee; and (2) the employee's employer is an intermediary or otherwise provides labor to another employer."

To read the DOL's Administrator's Interpretation 2016-1, click here.