DOL Proposes New Joint Employer Test 

Last week, the U.S. Department of Labor (DOL) proposed a new test for determining when multiple employers can be considered “joint employers” under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act, and the Migrants and Seasonal Agricultural Worker Protection Act. If adopted, this standard would be the first official test available since the 2020 rule adopted during President Trump’s first term was rescinded by the Biden Administration following a successful court challenge.

Joint employment is important because it creates liability. If an employer is found to be a joint employer under the FLSA, it will be liable for any minimum wage and/or overtime violations committed by another company in relation to the employee(s) at issue. Additionally, hours worked by a worker for one employer may be counted as hours worked for the other employer if a joint employment relationship exists.   

The proposed regulation uses different tests for “vertical joint employment” and “horizontal joint employment” scenarios. In horizontal joint employment, a worker is employed by two or more employers for separate work hours in the same workweek. The question is whether the employers are sufficiently associated with each other with respect to the worker as to be jointly responsible for each other’s legal violations. The proposed regulation provides that the following factors indicate a vertical joint employment relationship:

• 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 employers 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. 

In vertical joint employment, a worker performs work which simultaneously benefits two or more entities. The employee works one set of hours and has one employer; the question is whether another entity that benefits from the worker’s efforts is also an employer. For example, vertical joint employment can arise in contractor/subcontractor or franchisor/franchisee relationships. The focus on the inquiry hinges on the worker’s relationship with the second entity and whether, as a matter of economic reality, the employee is employed by both entities. Here, the regulation proposes a four-factor test to determine whether the potential joint employer:

• hires or fires the worker;
• supervises or controls the worker’s schedule or conditions of employment to a substantial degree; 
• determines the worker’s rate and method of payment; and 
• maintains the worker’s employment records. 

Importantly, the potential employer’s ability, power, or reserved right to act in relation to the worker is relevant to the analysis, but the actual exercise of control is more important and should be given greater weight. 

One helpful part of the proposed regulation is a clarification that common business models and practices, standing alone, do not make joint employer status more or less likely. These include businesses with certain contractual agreements related to health, safety or legal compliance, offering or participating in an association health plan or retirement plan, operating as a franchisor or entering into a brand and supply agreement, and quality control standards. 

As with the 2020 rule, the new proposed regulation is generally business friendly and may be subject to legal challenges if adopted. For now, the regulation is subject to public comment until June 22. We will keep you posted on developments. 

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.