DOL Finalizes Joint Employer Rule

January 15, 2020

On Jan. 12, the U.S. Department of Labor announced a final rule to update the regulations interpreting joint employer status under the Fair Labor Standards Act (FLSA). They have not been updated in more than 60 years. The rule, slated to be published in the Federal Register on Jan. 16, spells out the circumstances under which more than one business can be held liable for FLSA violations.

Under the FLSA, an employee may have, in addition to his or her employer, one or more joint employers—additional individuals or entities that are jointly and severally liable with the employer for the employee’s wages. The FLSA requires covered employers to pay their employees at least the federal minimum wage for every hour worked and overtime for every hour worked over 40 in a workweek.

In the final rule, the department uses a four-factor balancing test for determining FLSA joint employer status in situations where an employee performs work for one employer that simultaneously benefits another entity or individual. The balancing test examines 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.

Essentially, under the rule, companies will not be considered joint employers by virtue of their business model alone, although some may be considered joint employers based on how they are evaluated in the four-part test. According to the DOL, a given employer also cannot be considered a joint employer simply because they have oversight over another employer’s quality control standards, health and safety requirements or compliance with wage and hour laws.

The final rule also clarifies when additional factors may be relevant to a determination of FLSA joint employer status and identifies certain business models, contractual agreements with the employer, and business practices that do not make joint employer status more or less likely.

These revisions will add certainty regarding what business practices may result in joint employer status. This rule promotes greater uniformity among court decisions by providing a clearer interpretation of FLSA joint employer status. These benefits will in turn improve employers’ ability to remain in compliance with the FLSA and will help reduce litigation costs.

The DOL’s announcement follows decisions by other federal entities to pursue rulemaking on joint employment. The National Labor Relations Board (NLRB) is expected to finalize a similar rule under the National Labor Relations Act, which contains slightly similar provisions to DOL’s rule. The U.S. Equal Employment Opportunity commission (EEOC) announced last November that it plans to propose its own rule clarifying when a company should be classified a joint employer under federal employment discrimination law. The EEOC is expected to take the DOL’s rule into account and further in the direction of what the NLRB proposed.

In 2016, NSBA submitted a comment letter to the Wage and Hour Division (WHD) of the DOL regarding the then-Administrator’s Interpretation (AI) on joint employment under the FLSA. The NSBA letter focused on the broad array of potential new worker-related liability that many firms sought to eliminate by outsourcing certain functions, and urges the WHD to rework the many problems in the AI. Please click here to view the letter in full.

The rule is set to take effect March 16, 2020, or 60 days from the date of publication. More information about the final rule is available at https://www.dol.gov/agencies/whd/flsa/2020-joint-employment.

.