The USDOL has finalized its new rule concerning when two entities can be deemed a joint employer and therefore liable for each other’s wage violations. Under the Obama administration, the DOL sought to expand the reach of this doctrine and issued a “white paper” asserting that indicated that businesses had to be completely “disassociated” to not perhaps be joint employers.
The Trump DOL rescinded this position in 2017 and engaged in rulemaking. Now, there will be a new test, reliant on examination of four prongs: whether the alleged joint employer can hire or fire employees, control their schedules or their job conditions, set their pay and payment methods, and if it maintains their employment records.
Joint employer relationships arise in two scenarios:
- Where an employer suffers, permits or otherwise employs an employee to work but another individual or entity simultaneously benefits from that work
- Where two or more employers employ a worker for separate sets of hours in the same workweek
The new rule (effective March 16, 2020) changes only the “complete disassociation” analysis under the first scenario. The new rule introduces a balancing test that focuses on the actual exercise of control over an employee by considering whether a 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
- Maintains the employee’s employment records
Importantly, the rule makes clear that maintenance of employment records, without more, will not suffice to find a joint employer relationship. There will be other indicia to scrutinize, but these other areas must be indicators of the exercise of significant control over the terms and conditions of the employee’s work by the putative joint employer.
The rule also specifies factors that are not relevant to determining joint employer status. These include:
- An employee’s “economic dependence” on a potential joint employer, including factors traditionally used to establish whether a worker is an independent contractor
- Whether a potential joint employer operates as a franchisor or operates using a similar business model
- The potential joint employer’s contractual agreements requiring the employer to comply with its legal obligations or to meet certain health and safety standards
- The potential joint employer’s contractual agreements requiring quality control standards to ensure the consistent quality of work product, brand, or business reputation
- 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 “store within a store” arrangements), offering an association health or 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 practices
The DOL’s new rule will provide clarity for employers attempting to determine whether they are joint employers. Courts do not have to defer to this new regulation, but it has been my experience that courts often do give such deference. I hope they do because the old rule was far too vague to allow employers to really know how to structure their relationships with other entities.
Clarity is a good thing…