More Developments On Who Is A "Joint Employer" - DOL Issues Broader Definition

Previously, we alerted you that the National Labor Relations Board had expanded the definition of "joint employer" under the National Labor Relations Act. Now, the Department of Labor (DOL) has decided to follow suit and adopt an even broader definition for purposes of the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).  In so doing, the DOL reasons that the expanded definition will ensure that the "scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible."

The DOL made this announcement in the January 20, 2016 "Administrator's Interpretation No. 2016-1."  While the Interpretation is not law, it will govern how the DOL conducts its wage and hour investigations and may even be adopted by courts as persuasive authority. The DOL indicates that identifying joint employment relationships is a priority for the agency "[a]s the workplace continues to fissure, and as employment relationships continue to become more tenuous and murky."

In its expanded definition of "joint employer," the DOL will utilize two standards to determine if a joint employment relationship exists. The first of these standards (or tests) is "horizontal joint employment" which focuses on the degree of overlap or interrelatedness that two or more companies may have regarding an employee. Some of the factors to be evaluated as part of the horizontal joint employment test include:

  • Common ownership between the employing entities;
  • Whether both entities have overlapping officers, directors, executives or managers;
  • Shared control over operations (i.e., payroll, advertising, overhead costs);
  • Whether both entities have intermingled operations (i.e., payroll, benefits, scheduling);
  • Shared supervisory authority by each entity over the employee;
  • Shared clients or customers; or
  • Whether one entity supervises the other entity's performance.

The Interpretation provides the following example of horizontal joint employment:

Casey, a registered nurse, works at Springfield Nursing Home for 25 hours in one week and at Riverside Nursing Home for 25 hours during that same week. If Springfield and Riverside are joint employers, Casey's hours for the week are added together, and Casey should receive 10 hours of overtime compensation in total.

The second of the new DOL tests is whether a "vertical joint employment" relationship exists.  This definition applies to situations where an employee of one employer is also economically dependent on another employer.  In these types of relationships, there may be an agreement between two entities whereby one of them provides certain employer functions, such as hiring and/or payroll administration. Some of the factors to be evaluated as part of the vertical joint employment test include:

  • The extent to which the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contractual oversight;
  • Whether the potential joint employer has the authority to hire/fire the employee, determine rates of pay or modify employment conditions;
  • The permanency and duration of the relationship;
  • The extent to which the employee's work is integral to the potential joint employer's business;
  • The extent to which the work is performed on the potential joint employer's premises; or
  • The extent to which the potential joint employer performs traditional employer functions, such as handling payroll, providing workers' compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work.

The Interpretation provides the following example of vertical joint employment:

A laborer is employed by ABC Drywall Company, which is an independent subcontractor on a construction project. ABC Drywall was engaged by the General Contractor to provide drywall labor for the project. ABC Drywall hired and pays the laborer. The General Contractor provides all of the training for the project. The General Contractor also provides the necessary equipment and materials, provides workers' compensation insurance, and is responsible for the health and safety of the laborer (and all of the workers on the project). The General Contractor reserves the right to remove the laborer from the project, controls the laborer's schedule, and provides assignments on site, and both ABC Drywall and the General Contractor supervise the laborer. The laborer has been continuously working on the General Contractor's construction projects, whether through ABC Drywall or another intermediary. These facts are indicative of joint employment of the laborer by the General Contractor.

While the Interpretation may be subject to legal challenges, all employers should carefully review it and the factors set forth under both tests to determine whether they may be at risk for a joint employment finding by the DOL. In addition to the Interpretation, the DOL has created a new web page on joint employment that provides questions and answers, fact sheets, and graphic illustrations.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.