This week’s post is Family Feud Style. Name Three Things That Sound Like They Would Be “Joint Employment” But Are Not:
1. Long-haired, easy-going product tester at the local wacky tobacky dispensary.
2. Note taker at an orthopedist’s office.
3. The guy on radio ads for non-approved supplements claiming to relieve joint pain who says – really, really fast – “These statements not approved or validated by the FDA.”
Each of those jobs has something to do with joints, but that’s not what the Department of Labor (DOL) means when it addresses “joint employment.”
Under the Fair Labor Standards Act (FLSA), more than one person can be an employee’s employer, and when there’s joint employment, both employers are fully liable for any minimum wage or overtime owed to the employee. So, when is a business a joint employer?
On Sunday, the DOL issued new rules for determining when a business is a joint employer under the FLSA. The new rules take effect in 60 days. Here’s what you need to know.
Four-Part Balancing Test
When an employee’s work is for the benefit of both the W-2 employer (such as a staffing agency) and another business, the determination of whether the second business is a “joint employer” is made by evaluating whether the second business:
- 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.
- Maintains the employee’s employment records.
It’s a balancing test, and no single factor is dispositive.
Actual Control Is Required; Reserved Control Is Not Enough
The new regulations focus on actual control, not merely the right to exert control. This is different from the common law test.
Under the new regulations, the potential joint employer must actually exercise control. Merely reserving control can be relevant, but only if the business actually exercises control in at least one of the four ways. Standard contract language reserving a right to act is not sufficient to demonstrate joint employment.
Different Test for Independent Contractor Versus Employee
The test for joint employment will now be different from the test for Independent Contractor vs. Employee. To determine whether someone is an employee or an independent contractor under the FLSA, the key question is whether the worker is economically dependent on the potential employer. But according to the new regulations, once the worker is someone’s employee, economic dependence is not relevant to determining whether there is a second or “joint” employer.
Ordinary Sound Business Practices Are Not Evidence of Joint Employment
The regulations also provide assurance to businesses that wish to impose rules to preserve brand standards, ensure compliance with the law or instill sound business practices. Those types of actions, according to the DOL, are not evidence of joint employment.
For example, the following actions by a potential joint employer do not make a finding of joint employment more likely:
- Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model.
- Requiring the primary employer to comply with specific legal obligations or to meet certain standards to protect the health or safety of its employees or the public.
- Monitoring and enforcing contractual agreements with the primary employer, such as mandating that primary employers comply with their obligations under the FLSA or other similar laws.
- Instituting sexual harassment policies.
- Requiring background checks.
- Requiring primary employers to establish workplace safety practices and protocols or to provide workers with training in matters such as health, safety or legal compliance.
- Requiring the inclusion of certain standards, policies or procedures in an employee handbook.
- Requiring quality control standards to ensure the consistent quality of the work product, brand or business reputation, or the monitoring and enforcement of such requirements, including specifying the size or scope of the work project, requiring the employer to meet quantity and quality standards, and imposing deadlines.
- Imposing morality clauses.
- Requiring the use of standardized products, services or advertising to maintain brand standards.
- 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 primary employer or participating in such a plan with the primary employer.
- Jointly participating in an apprenticeship program with the primary employer.
The new regulations apply to the FLSA only. Other agencies may impose different standards. The National Labor Relations Board (NLRB) is expected to issue its own regulations shortly to address when there is joint employment under federal labor law, and the Equal Employment Opportunity Commission (EEOC) is expected to consider issuing its own new standards for determining whether joint employment exists under federal anti-discrimination laws.
Standards issued by the NLRB or the EEOC may be similar or may be materially different.
Reliance on the New Rules Provides a Defense
These new rules will apply to DOL investigations of FLSA compliance matters. It remains to be seen whether the federal courts will apply these rules too, but, importantly, the rules provide for Portal-to-Portal Act reliance.
That means employers are entitled to rely on these regulations as a defense to any joint employment claim. The regulations provide several examples of scenarios in which joint employment does and does not exist. Employers should review those scenarios and model their relationships accordingly.
Additional resources from the DOL can be found here:
- Final Rule: Joint Employer Status under the Fair Labor Standards Act (PDF)
- Fact Sheet: Final Rule on Joint Employer Status under the Fair Labor Standards Act
- Joint Employer Final Rule Frequently Asked Questions
- Press Release [01/12/2020]: Department of Labor Issues Final Rule to Update the FLSA’s Joint Employer Regulations
Editor’s Note: For more information, tips, and developments on issues related to joint employment and independent contractor misclassification issues, follow Todd Lebowitz’s blog, at whoismyemployee.com.