Link to The Dangers of Joint Employment The Dangers of Joint Employment
Employers sometimes are named in employment litigation or agency investigations for employees who never actually were on their payroll. All sorts of uncomfortable issues, such as confidentiality issues, insurance issues, and indemnity issues, can arise when this happens. The same problem can occur in a union organizing or collective bargaining setting. Employers that rely on temporary staffing agencies or frequently use subcontractors or consultants as a way to avoid adding headcount can find themselves in one of these situations. If such a scenario arises with class-action claims or with complicated pension plan liability or perhaps with serious workplace injuries, the exposure can be very large in addition to being unexpected. Thus, always keeping in mind potential liability under a joint-employer theory is very important.
Link to Joint-Employer Status Is Not the Same as Single-Employer Status Joint-Employer Status Is Not the Same as Single-Employer Status
As background, there really are two different concepts used to impose employment liability of one employer on another. One of these is the “single-employer” doctrine, and it typically is limited to organizations that have some sort of corporate relationship. Usually, the analysis involves these four factors: (1) common ownership, (2) common management, (3) interrelation of operations, and (4) centralized control over labor relations. The last factor is always the most important. “Double-breasting” analysis — the potential liability of a nonunion subsidiary for a union’s subsidiary’s labor obligations — usually occurs under the single-employer doctrine.
The joint-employer concept, on the other hand, does not have to involve employers with a corporate relationship. This of course is what makes this concept “more dangerous.” The joint-employer doctrine is applied most frequently to employers using staffing agencies, subcontractors, or professional employer organizations (PEOs). It also can arise in the franchisor-franchisee context. Although the exact factors can vary between which federal or state law is at issue, the main factors are (1) the degree of control the purported employer has over the employees and (2) the so-called economic realities of the parties’ relationship with one another. As to the first, the main consideration is which employer is actually supervising and controlling the manner and the method of the work. As to the second, the considerations typically are hire and fire authority, supervision and control of the work, determination of wages and hours, and the maintenance of employment records.
Link to The Joint-Employer Rule Has Been Like a Pendulum The Joint-Employer Rule Has Been Like a Pendulum
The overall standard for joint-employer liability has swung back and forth in the last several years between being employer friendly or being employee friendly. This has occurred mainly at the federal level in the context of the National Labor Relations Act and Fair Labor Standards Act (FLRA). For example, in 2015 during the Obama administration, the National Labor Relations Board (NLRB) held that joint-employer status could exist only if a “reserved” right of control existed over affected workers. Actual control did not have to exist. In 2020, the NLRB adopted a new rule that rejected the reserved right of control test and focused on direct and immediate control. In 2023, during the Biden administration, the NLRB rescinded this test in favor of a more employee-friendly test again. That new rule was struck down in court, however. Likewise, the Department of Labor’s joint-employer rules under the FLSA have swung back and forth in a similar fashion during this same period.
Link to The New Proposed Joint-Employer Rule and the Reinstated Rule The New Proposed Joint-Employer Rule and the Reinstated Rule
Earlier this year, the NLRB issued a final rule reinstating the more employer-friendly 2020 joint-employer rule. Likewise, the Department of Labor also issued a new notice of rulemaking under the FLSA. This new rule also focuses on some of the same factors from the 2020 rule mentioned above. Under this rule, the key joint-employment factors are:
- Control over hiring and firing,
- Supervision of work schedules and conditions of employment,
- Determination of rates and methods of pay, and
- Maintenance of employment records.
As is evident, regardless of the details of all these different tests, the key factor is always the amount of control over the employees.
Link to Best Practices Best Practices
Best practices really fall into two main categories:
- Employers should do what they can to prepare for a claim in advance. This involves reviewing contracts, whether labor staffing agreements or traditional subcontracts, as well as reviewing insurance coverages and using adequate indemnity language where needed.
- On the job, employers should keep employees sufficiently separate from the employees of other entities, such as subcontractors or consultants. This means, for example, ensuring that subcontractors provide their own methods and supervision and ensuring that work is paid for “by the job” and not “by the hour.” And it also might help, if applicable, to make sure that workers wear the correct uniforms and identification badges as the work is done.
You can read more on joint-employer liability and independent contractors on our Labor & Employment Insights blog.
Bradley’s Labor & Employment Practice Group regularly advises employers on joint-employer issues. Employers with questions about these rules should consult experienced counsel.