Department of Labor wants to change

04.17.19

The year was 1958. The hula hoop first hit the shelves. The World’s Fair was held in Brussels. The Baltimore Colts beat the New York Giants in overtime to win the NFL Championship. It was also the last time that the Department of Labor (DOL) issued guidance on its interpretation of the term “joint employer” found in the Fair Labor Standards Act (FLSA). On April 1 of this year, that changed. The DOL issued proposed rulemaking to update and clarify when employers will incur liability under Part 791 of Title 29, Code of Federal Regulations.

In general, employers under FLSA must pay their employees overtime pay if they work more than 40 hours a week. Employees who exceed this number by working two different jobs are typically not entitled to this benefit. For example, an employee who works 30 hours a week at one job and 20 hours a week at a different job is probably not entitled to 10 hours of overtime. Joint employers are an exception. Not only must joint employers pay an employee overtime for hours worked over 40 per week, but they are jointly and severally liable for the employee’s wages.

The DOL’s current rule considers multiple employers to be joint employers if they are “not completely disassociated” with regards to the individual’s employment. This standard has been interpreted broadly, often finding joint employer status when an individual performs work that “simultaneously benefits” another entity or person. For example, a subcontractor and a contractor are rarely “completely disassociated.”

The new proposed rulemaking replaces this standard with a four-factor balancing test derived from the Fourth Circuit’s decision in Bonnette v. California Health & Welfare Agency. Joint employers must exercise control over the “essential terms and conditions of employment,” which includes:

1) hiring and firing;

2) supervision and control of the employee’s work schedules or conditions of employment;

3) determining the employee’s rate and method of payment; and

4) maintaining the employment records.

This test effectively narrows the “joint employer” definition to those scenarios in which an employer exercises “substantial direct and immediate control.” For employers who are wondering how this proposed rulemaking may affect their classification of employees, the DOL website provides several helpful scenarios to clarify. For example, a cook works at one restaurant for 30 hours a week and 15 at another. If the restaurants are simply part of the same nationwide franchise but locally owned and managed, there is no joint employer status. However, if the two restaurants share common ownership and coordinate the cook’s schedule, joint employer status may exist.

In general, this change is expected to reduce the number of employers who qualify as joint employers. DOL itself refers to this change as “deregulatory.” If you have thoughts or feedback on this proposed rule, you can visit the Federal Register to read more and file a comment.