In a major move, the U.S. Department of Labor (DOL) through its Wage and Hour Division (WHD) has finalized a significant amendment to its interpretation of the regulations defining joint employers under federal law. The DOL’s final rule will take effect on March 16, 2020. Interestingly, in its published explanation of its final rule, the DOL explained that after considering public comments on the proposed changes, the agency agreed with most positions taken by the employer community, rather than with those supported by employee advocates.
Background of joint-employer status
The DOL enacts these regulatory changes under the authority of the Fair Labor Standards Act (FLSA), the main federal law governing wage-and-hour issues. Under the FLSA, most employers must pay minimum wages and overtime compensation for all hours worked in excess of 40 per week. When there is a joint employer relationship, both employers are “jointly and severally” responsible (each liable for the complete amount due) for the minimum wage and overtime requirements.
The WHD explains that there are two types of joint employer relationships. First, an employee’s work for an employer can also simultaneously benefit another party at a level where it should be considered a joint employer (vertical joint employment). Second, an employee may be scheduled to work for two employers in a workweek, but because of the joint nature of the work for both employers, the hours should be combined for purposes of reaching the 40-hour threshold for overtime compensation (horizontal joint employment).
The DOL’s final rule mostly impacts vertical joint employment.
Main thrust of the amendments
The agency is adopting, with one tweak, the four-factor test for joint employment articulated in the 9th U.S. Circuit Court of Appeals case Bonnette v. California Health & Welfare Agency. This test requires balancing of these “control factors” to assess whether the party that may be a joint employer:
- Hired or fired the employee;
- Supervised and controlled the employee’s work schedule or conditions of employment to a substantial degree;
- Determined the employee’s rate and method of payment; and
- Maintained the employee’s employment records.
The agency emphasizes that no one of these factors determines joint employment status alone, but that they are to be balanced according to the individual situation.
Importantly, the WHD writes that to be a joint employer, the entity must exercise at least one of the control factors. The potential or reserved power to assert these “control factors” alone is not enough – there must be “some actual exercise of control.” This was one of the points vigorously opposed by employee advocates, who argued that the possibility of or right to exercise control should be enough.
Regarding the first factor, the agency departs from the Bonnette case in that the hiring or firing must actually have happened – it cannot be a reserved power that the potential joint employer might exercise in the future. While the reserved right to control may be relevant, it alone cannot be dispositive.
Finally, the agency allows consideration of factors outside of the four “control factors” listed above, only if the additional factors show substantial control over the employee. The final rule also says that certain relationships between the employer and potential joint employer are not relevant, such as a franchise relationship. The final rule also says that an employee’s economic dependence on a potential joint employer is not relevant.
This is only an introduction to a detailed change of regulatory law. An attorney can answer questions about how it applies in any given employee-employer relationship.