New Rule Tightens Definition of Joint Employer

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Jan 13, 2020

New rules narrowing who may be considered a “joint employer” under the Fair Labor Standards Act were released by the US Department of Labor Sunday.  It’s the first significant revision in 60 years.

Under the new rules which take effect March 16, most joint employer determinations will be based on what the department described as a “four-factor balancing test.” In deciding if employers share liability for wage and hour violations, the department will consider 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.

In addition, the new rule says other factors to be relevant, ” but only when they show whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work.”

Joint employer issues most often arise in cases of temporary workers provided by an agency and in contractor situations. Temp workers are typically payroll employees of the agency, but perform work for the benefit of another organization usually at that employer’s place of business. Issues can arise, for example, when the staffing agency prohibits overtime, but the worker’s on-site manager requires it anywhere. Other common situations involve contractors and their subs.

In the last several years, cases involving franchisors and their franchisees have arisen. One of the highest profiles cases involved workers who attempted to hold McDonald’s jointly liable for violations of the FLSA by one of its franchisees. Last fall, a federal appeals court said McDonald’s did not exert enough control over franchisee employees to be considered a joint employer.

In a second type of employment situation, where a worker is employed by two different employers in the same work week, the rules remain unchanged. If the two employers are not associated and are independent of each other, any FLSA liability of one employer is their own and neither must take into account the employee’s work done for another.

However, the DOL fact sheet says: “The employers will generally be sufficiently associated if there is an arrangement between them to share the employee’s services, 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, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.”

The complete rule is available here.