On January 12, 2020, the United States Department of Labor (“DOL”) announced a final rule revising its regulations interpreting joint-employer status for purposes of the Fair Labor Standards Act (“FLSA”). The final rule will take effect on March 16, 2020.
Background
Under FLSA, employers are required to pay employees at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 in a workweek. Employers are defined under the FLSA as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Thus, an employee may have one or more joint employers.
New Rule
The DOL’s final rule continues to recognize two scenarios under which the agency identifies joint employer status. In the first scenario, employers are considered joint employers where an employee performs work for one employer that simultaneously benefits the other employer. In the second scenario, employers are considered joint employers where one employer employs the employee for one set of hours in a workweek and the other employer employs the same individual for a separate set of hours in the same workweek.
With respect to the first scenario, the final rule adopts a four-factor balancing test for determining joint employer status. The DOL will consider whether the potential joint employer:
- 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.
The final rule also provides clarity on the four-factor analysis. It provides:
- no single factor is dispositive, and each factor is to be weighed based on the circumstances of the case;
- mere maintenance of an employee’s employment records alone will not establish joint-employer status; and
- additional factors may be relevant to the analysis but only when they show whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work or is otherwise acting directly or indirectly in the interest of the employer in relation to the employee.
The final rule also identities several factors that are not relevant to the determination of joint employer status. The factors are:
- operating as a franchisor or entering into a brand and supply agreement, or using a similar business model;
- the potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public;
- the potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quantity of the work product, brand, or business reputation; and
- the potential joint employer’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “a store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.
The final rule also provides several examples of how the DOL’s joint employer guidance should be applied in various circumstances.
Takeaways
Employers should view the new rule as a positive development as the new standard is clearer and narrowly defines joint employer status. Employers should note, however, that the final rule applies only to the FLSA and does not apply to the Occupational Safety and Health Act, the National Labor Relations Act, Title VII of the Civil Rights Act, or state wage and hour laws.