DOL Releases Joint Employer Rule

April 3, 2019

On April 1, the U.S. Department of Labor (DOL) announced a proposed rule that would update Fair Labor Standards Act (FLSA) joint employment regulations. The rules govern situations in which multiple employers can be held liable for wage and hour violations. The proposed regulation would make it harder to hold businesses jointly liable when their franchisees or contractors violate the FLSA.

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 DOL new proposal includes a “four-factor balancing test” the agency said is derived from a federal court’s ruling in Bonnette v. California Health & Welfare Agency, that will be used to determine whether a business is jointly liable under the 1938 law, which governs minimum wage and overtime. The four factors assess whether an alleged joint employer: 1) hires or fires the employee in question; 2) supervises and controls the employee’s work schedule or conditions of employment; 3) determines the employee’s rate and method of payment; and 4) maintains the employee’s employment records.

The agency also said its proposal will explain that other factors may be relevant if the initial factors show the alleged joint employer: a) exercises significant control over the terms and conditions of the employee’s work; or b) otherwise acts directly or indirectly in the interest of the employer in relation to the employee. Whether an employee is economically dependent on the potential joint employer is “not relevant” in determining that employer’s economic reality under FLSA, DOL said: “Accordingly, to determine joint employer status, no factors should be used to assess economic dependence.”

If adopted, the rule would represent a major change to federal labor regulations in an area of law that has become increasingly murky and contentious due to an increase in the use of independent contractors, staffing agencies and other similar workforce models. Joint employer questions have plagued industries in which franchising is prevalent, but DOL said an entity’s business model — including a franchise model — should not “make joint employer status more or less likely under the Act.”

The proposal also is a rebuke of the Obama administration’s since-rescinded 2015 guidance on joint employment. That guidance favored a six-factor economic realities test, which proved controversial with employers and their advocates. The Obama-era DOL guidance said that a business need to have only indirect control over employees to be held jointly liable.

DOL’s rule also follows a separate joint employer rulemaking effort by the National Labor Relations Board (NLRB) implementing the National Labor Relations Act. Both agencies’ rules include similar language, couching the definition of a joint employer in what NLRB calls the essential terms and conditions of employment, including hiring, firing and supervision of an employee. The moves reflect an overall effort by labor officials in the Trump administration to set a higher bar for joint employment.