Professional Service Agreement

DOL Releases Final Rule to Clarify Joint Employment

January 16, 2020

The U.S. Department of Labor (DOL) has announced a final rule to revise and update its regulations interpreting joint employer status under the Fair Labor Standards Act (FLSA), which is of particular interest to employers that use staffing agencies, have franchise relationships, and use subcontractors. The effective date of the new rule is March 16, 2020.

The FLSA requires that employees be paid at least minimum wage for all hours worked, and that employees receive overtime for any hours worked over 40 in a workweek. This is relatively straightforward when there is only one employer. But if an individual is jointly employed by more than one employer, it is more complicated to ensure that the employee’s wages are properly paid. If there is a joint employment relationship, each employer can be held liable for the full amount of the wages owed to the employee.

Employee Working for One Employer, Benefits Another Employer

The final rule highlights two situations when joint employment comes into play. In the first situation, the employee does work for one employer which also benefits another employer. In this case, there is a 4-part test to determine whether a joint employment relationship exists. The test examines 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.

(NOTE: The National Labor Relations Board has recently restored the old rule that a joint employer relationship only exists if two or more employers both had the power to do the above).

The rule states that each case needs to be looked at on an individual basis, examining the specific facts and circumstances. How the factors are weighed in each case will depend on the unique aspects of each situation. If additional factors show whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work, then these factors will be considered as well

The rule also lists a number of factors that will not be considered when making a determination on whether a joint employment relationship exists. According to the final rule, these include:

  • The economic dependence of the employee on the potential joint employer.
  • Whether the company is operating as a franchisor or entering into a brand and supply agreement, or using a similar business model.
  • The presence of contractual agreements the potential joint employer has with the employer that would require the employer to meet legal obligations or standards to protect the health or safety of its employees or the general public.
  • The presence of contractual agreements the potential joint employer has with the employer that would require quality control standards ensure the quality of the work product, brand, or business reputation.
  • Whether the potential joint employer has a practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or similar business practices.

Are the Employers Sufficiently Associated?

The final rule outlines a second potential situation when a joint employment relationship may exist. According to the rule, if an employee is working for two different employers, and the employers are sufficiently associated in regards to the employee’s employment, a joint employment relationship exists and the employers must combine the hours worked for each in order to determine if they are paying the employee properly.

The new rule outlines several factors to determine whether employers are sufficiently associated:

  • If there is an arrangement between them to both use the service provided by the employee,
  • The employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or
  • They share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer.

On the other hand, the rule states that in a situation where an employee is working for two different employers, but the employers are acting independently of each other and are disassociated with regards to the employment of the employee, then a joint employment relationship does not exist and each employer may disregard work performed by the employee for the other employer when meeting its obligations under the FLSA.

What to Do Next

There are several types of business relationships that have traditionally had to be very careful when it comes to joint employment. Companies that use staffing agencies to provide additional workers should examine the new rules to ensure they are paying their employees properly. Businesses that are involved in franchise relationships often run into problems with joint employer requirements.

There are also situations where businesses can be held to joint employer relationships with subcontractors. The new rules make it more difficult for employees to hold companies liable for the wage violations of staffing agencies, franchisees and subcontractors, but it is still important for all companies to review the new rules on joint employment, analyze your business relationships with other employers, review your pay policies, and make sure your company is in compliance with the updated joint employer rules.

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