Trial News

The U.S. Department of Labor (DOL) has proposed to clarify when employees whose work for one employer simultaneously benefits another employer are considered jointly employed. The proposed rule represents the DOL’s first revision to the joint employer status rule in 60 years and would greatly narrow the circumstances under which employers are liable as joint employers. (Joint Employer Status Under the Fair Labor Standards Act, 84 Fed. Reg. 14043 (proposed Apr. 9, 2019) (to be codified at 29 C.F.R. §791).)

Under the Fair Labor Standards Act (FLSA), covered employers must pay their employees at least the federal minimum wage for hours worked up to 40 in a workweek and overtime for hours worked beyond that. Under current DOL regulations, a determination of whether employers are acting jointly is based on whether the employers are “not completely disassociated” or “acting entirely independently of each other” with respect to the employee’s employment. Furthermore, joint employer status can be determined by looking at whether “there is an arrangement between the employers to share the employee’s services,” “one employer is acting directly or indirectly in the interest of the other employer in relation to the employee,” or “the employer . . . may be deemed to share control of the employee . . . by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.”

The advent of certain modern employment arrangements, such as subcontractors and staffing agencies, have caused confusion about when an employment relationship exists for purposes of wage and hour obligations under the FLSA. In 2016, the DOL’s Wage and Hour Division attempted to clarify joint employer status with the issuance of Administrator’s Interpretation No. 2016-1, which expansively defined the term “employ” and created broad employer liability for wage and hour violations. In June 2017, the Trump administration withdrew this interpretive guidance in a brief news release but provided no further details on how to determine joint employer status.

Because subcontractors and staffing agencies are rarely “completely disassociated” from general contractors and staffing agency clients, respectively, these employers often meet the FLSA criteria for joint employment status. However, under these arrangements one employer often is liable for an employee’s wages and other working conditions despite having insignificant control over the employee. In the current rulemaking, the DOL proposes to narrow when employers of those who work for one employer, while simultaneously benefiting another employer, are considered joint employers.

Circuit courts are split as to the correct multi-factor test to use to determine joint employer status in these simultaneous work scenarios. In Bonnette v. California Health & Welfare Agency, the Ninth Circuit considered whether home care employees who worked for the state’s welfare program were jointly employed by the state and the counties. (704 F.2d 1465 (9th Cir. 1983).) In finding that a joint employment arrangement existed, the Ninth Circuit applied a four-part test and considered “whether the alleged employer: (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.”  

The DOL now proposes to adopt the four-part test in Bonnette with slight but significant modification to the first factor. The rule would require that, to be liable as a joint employer, an employer hire and fire the employee, rather than merely have to power to do so. The four-part test would replace the DOL’s current “not completely disassociated” standard for determining joint employment status when an employee’s work simultaneously benefits multiple employers.

After applying the four-part test, employers could then look to additional factors to determine joint employment status. However, these factors would be limited to those indicative of an alleged joint employer’s “significant control over the terms and conditions of the employee’s work” and whether the alleged joint employer is “acting directly or indirectly in the interest of the [other] employer” as to the employee.

The proposed rule also clarifies that an employer’s business model, such as a franchisor-franchisee arrangement, does not make joint employer status more or less likely under the FLSA. In addition, certain business practices and agreements also should not have a bearing on whether a joint employment arrangement exists. Examples of business practices and agreements include the provision of employee handbooks, employee benefit program sponsorship, and agreements regarding workplace safety.  

Washington, D.C., attorney D. Michael Hancock, who is also a former assistant administrator for the DOL’s Wage and Hour Division, said, “the proposed rule misstates the law in the Ninth Circuit that it purports to follow.” Hancock added that “the Bonnette case does not stand for the proposition that its four factors are the sum total of the employment test in the Ninth Circuit. In fact, in a joint employment case decided after Bonnette, Torres-López v. May, the Ninth Circuit very specifically held that a broad array of factors should be analyzed to determine if a worker is economically dependent on another and thereby an employee.”

Hancock described the proposed joint employer regulation as “a huge step backwards for workers. The FLSA intentionally incorporated an expansive test to sweep in employers who would not meet the common law control test. The result has been that employees have been protected from employers who sought to obscure their involvement by shifting responsibility for the formal aspects of the employment relationship to others while continuing to reap the gains from the workers’ labor.” 

However, the proposal, even if adopted, would not bind courts but would merely be persuasive, Hancock explained, because the DOL lacks legislative rulemaking authority. “I suspect that most courts will find the arguments marshaled in the former administration’s Administrator’s Interpretation a more compelling analysis of the joint employment test than this proposal.”

The rule is not yet final, and the DOL is accepting comments through June 10, 2019.