The United States Department of Labor today released new regulations that dramatically change the existing rules on when two businesses are “joint employers” under federal wage and hour laws.
The new rules impact so-called “horizontal” and “vertical” joint employment situations, although the DOL has changed the use of the terminology a bit.
In the horizontal situation, as now outlined by the USDOL rule, the employee has an employer but another person simultaneously benefits from that work. The other person is the employee’s joint employer “only if that person is acting directly or indirectly in the interest of the employer in relation to the employee.
How do you know? The USDOL has set forth four factors on whether this other person:
- 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; and
- Maintains the employee’s employment records.
In the vertical situation, an employee works for one employer for several hours and another employer for a separate set of hours in the same workweek. Why does this matter?
As the USDOL states in the regulation:
[I]f the employers are acting independently of each other and are disassociated with respect to the employment of the employee, each employer may disregard all work performed by the employee for the other employer in determining its own responsibilities under the Act. However, if the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining compliance with the Act.
So how do you know?
The employers will generally be sufficiently associated if:
- There is an arrangement between them 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
- They 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 employer. Such a determination depends on all of the facts and circumstances.
And if that isn’t clear enough, the regulations state that “sharing a vendor or being franchisees of the same franchisor are alone insufficient to establish that two employers are sufficiently associated to be joint employers.”
Employers in Connecticut that are subject to federal law (that is, most of them), should review this rule carefully to ensure that you are on the right side of whatever line you want to draw (mostly, the non-joint employer side).
But as my former colleagues stated in a 2016 blog post, employers should always beware of Connecticut Workers Compensation Act rules which still may impose a different test:
The Act provides that when any principal employer obtains work to be done by a subcontractor as part of the regular work of the principal employer, the principal employer is liable for payment of workers compensation claims for injuries to employees of the subcontractor.
In that instance, the employers may still be joint under state law, but not federal.