DOL Issues Guidance on Joint Employment
The U.S. Department of Labor (DOL) and other federal and state agencies have recently focused on the concept of joint employment, seeking to determine that an employee may be simultaneously employed by more than one company. Earlier this year, the DOL issued an Administrator’s Interpretation of current law in this area under the Fair Labor Standards Act (FLSA). According to the DOL: “The growing variety and number of business models and labor arrangements have made joint employment more common.”
The Administrator’s Interpretation describes both horizontal and vertical joint employment scenarios. Horizontal joint employment exists where two or more companies are sufficiently associated or related with each other with respect to the employee. In this situation, each company is typically an established or admitted employer of the individual. For example, the individual may perform work for two different restaurants. The focus in determining whether horizontal joint employment exists is then on the relationship between the two restaurants to assess whether they are sufficiently related to be joint employers.
The DOL states that the following factors may be relevant in determining whether horizontal joint employment exists: (1) who owns the potential joint employers; (2) do the potential joint employers have any overlapping officers, directors, executives or managers; (3) do the potential joint employers share control over operations: (4) are the potential joint employers’ operations inter-mingled; (5) does one potential joint employer supervise the work of the other; (6) do the potential joint employers share supervisory authority for the employee; (7) do the potential joint employers treat the employees as a pool of employees available to both of them; (8) do the potential joint employers share clients or customers; and (9) are there any agreements between the potential joint employers.
By comparison, vertical joint employment exists where the employee plainly has an employment relationship with one entity and the economic realities show that the employee is economically dependent on another entity involved in the work. For example, such joint employment might exist when an employee is placed by a staffing agency with a host company.
The factors cited by the Administrator’s Interpretation as relevant to determining whether vertical joint employment exists are: (1) the extent to which the employee’s work is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight; (2) the potential joint employer’s power to hire or fire the employee, modify employment conditions or determine the employee’s rate or method of pay; (3) the extent to which the work relationship with the potential joint employer is permanent, full-time, or long term; (4) whether the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled and/or requires little or no training; (5) the extent to which the employee’s work is integral to the potential employer’s business; (6) whether the employee’s work is performed on premises owned or controlled by the potential joint employer; and (7) the extent to which the potential joint employer performs administrative functions regarding the employee, such as handling payroll, providing workers compensation insurance, and providing necessary tools and materials.
The DOL emphasizes that the concept of joint employment is “expansively” defined under the Fair Labor Standards Act and is notably broader than the common law concept of joint employment which may control under other statutes. While other laws focus solely on the amount of control that a potential employer exercises over the employee, the broader economic realities test (which does not require such control) is more likely to result in a determination of joint employment.
Takeaway: The above-referenced factors provide helpful guidance in determining whether or not a joint employment relationship exists. Companies seeking to avoid joint employer status should consider taking steps to deflect even the appearance that these factors apply to their circumstance.