On April 1, 2019, the Department of Labor (DOL) announced a proposed rule revising the standard for joint employer status under the Fair Labor Standards Act (FLSA). Once the proposed rule is published in the Federal Register, the public will have 60 days to submit comments to DOL for review. Interested parties may submit comments at www.regulations.gov, in the rulemaking docket RIN 1235-AA26.
The proposed rule marks the first time in 60 years that DOL has revised its interpretation of the joint employment standard. Generally, the FLSA imposes joint employer liability wherever two employers are jointly responsible for an employee’s wages. If two businesses are found to be joint employers under the FLSA, they can be held jointly and severally liable for any FLSA violations, including the failure to pay minimum wages and overtime pay. The proposed rule will significantly alter the accepted understanding of joint employment.
In 2016, the Obama administration issued guidance that substantially increased the likelihood that business relationships involving staffing agencies, subcontractors, and franchisees could lead to joint employer liability. The Obama-era guidance allowed joint employment liability if a business could potentially exercise control over an employee’s terms and conditions of employment, regardless of whether such control was actually exercised. Under the Trump administration, the DOL rescinded the Obama-era joint employment guidance in 2017, but did not announce any new rule addressing joint employment until now.
Under the proposed rule, the joint employment determination would be decided based on a four-factor test. The four factors ask whether a potential joint employer actually exercises the power to:
- Hire or fire the employees;
- Supervise and control the employees’ work schedules or conditions of employment;
- Determine the employees’ rates and methods of payment; and
- Maintain the employees’ employment records.
The proposed rule also included eight examples of how the four-factors would be applied.
The four-factor test can be traced back to the Ninth Circuit decision, Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). In Bonnette, the Ninth Circuit employed essentially these same four factors in holding that certain in-home care workers were jointly employed by their respective states and counties for FLSA purposes.
Much of the additional information the DOL provided with the proposed rule amounts to a repudiation of the Obama-era guidance. The proposed rule expressly rejects ideas such as analyzing a worker’s “economic dependence” on a purported joint employer entity or speculation regarding that entity’s “theoretical ability” to take action affecting a worker’s terms and conditions of employment.
Workers’ rights advocates are generally opposed to the proposed rule, objecting that it is unduly restrictive and will limit the situations where joint employer liability may be imposed. Pro-business groups are hailing the proposed rule as a fair approach to the joint employment inquiry, which has become increasingly controversial in the last five years.
If you have questions about the proposed rule or joint employment more generally, the labor and employment law attorneys at Vandeventer Black LLP are available to assist you.