Posted on 04/02/2019 at 10:25 AM by Mike Staebell
On April 1, 2019, the Department of Labor announced a Notice of Proposed Rule Making (NPRM) for Part 791 of Title 29 of the Code of Federal Regulations for the Fair Labor Standards Act that will “ revise and clarify the responsibilities of employers and joint employers to employees in joint employer arrangements”. This regulation had not been meaningfully revised since 1958.
The DOL proposes using “a clear, four-factor test—based on well-established precedent—that would consider whether the potential joint employer actually exercises the power to” do the following:
- hire or fire the employee;
- supervise and control the employee’s work schedules or conditions of employment;
- determine the employee’s rate and method of payment; and
- maintain the employee’s employment records.
The NPRM notes that additional factors may be used to determine joint employment, such as the exercise of significant control over terms and conditions of the employee’s work, and otherwise acting directly or indirectly in the interest of the employer in relation to the employee.
The NPRM declares certain factors irrelevant in the joint employment determination, including economic dependence, the specialty of the job, the opportunity for profit or loss based on managerial skill, investing in equipment or materials required for the work, and reserved but not exercised power to act in relation to employees. Additionally, the NPRM provides that no business model (e.g., franchisee-franchisor), business practice (e.g., providing sample handbooks, joint apprenticeship programs, association benefit plan participation), or business agreement (e.g., requiring vendors or subcontractors to pay above wage floors, institute anti-harassment policies, or institute workplace safety measures) can make joint employment status more or less likely. The NPRM also abandons the current regulation’s standard of “complete disassociation” between employers to avoid a joint employer determination.
Perhaps most helpful, the NPRM provides nine examples of what is and is not joint employment. The examples cover both horizontal and vertical joint employment scenarios. DOL says these examples will further clarify joint employer status, and they do, without legalese.
The DOL submitted its proposed rule to the Office of the Federal Register (OFR) for publication on April 1. The public will have 60 days to comment on the proposed regulation, beginning on the date of its publication in the Federal Register.
What is Joint Employment?
Defining joint employment under the FLSA, the National Labor Relations Act, and other laws has been hotly debated for the past several years in courts and employment law circles. It is worthwhile to look at what joint employment is, and the controversy surrounding the concept.
Businesses today often utilize employees from third-party management companies, professional employer organization (PEO’s), staffing agencies, contractors, or other labor providers. Commonly found in the construction, agricultural, janitorial, warehouse/logistics, manufacturing, and hospitality industries, these practices of sharing employees can constitute joint employment arrangements. Affiliated or related businesses sometimes share employees, too. When they do, they also may constitute joint employment arrangements. In fact, franchisee-franchisor relationships were at the center of the recent joint employment debates.
When joint employment is found to exist, each employer is jointly and severally liable for compliance with the FLSA and other laws. Joint and several liability means each business is independently and fully liable for complying with the law. In the case of the FLSA, if one joint employer does not properly pay minimum wage and overtime, each joint employer may be held separately and fully liable to right those wrongs. If one joint employer cannot pay, the other(s) are on the hook.
The Recent Joint Employment Debate & the FLSA
The recent FLSA joint employment debate began in January 2016 when DOL’s Wage and Hour Division (WHD) issued a sub-regulatory guidance in the form of an Administrator’s Interpretation (AI), 2016-01. Continuing the theme of expanded DOL enforcement authority during the Obama Administration, it enlarged the DOL’s interpretation of what constituted joint employment.
Traditionally, the amount of control exercised by a potential joint employer over the employee was the focus in determining whether a joint employment relationship existed. In its 2016 guidance, however, the WHD rejected this test and replaced it with an economic realities test that looked at whether the employee was economically dependent on the potential joint employer.
In June 2017, the Trump DOL withdrew the 2016 AI. This appeared to signal that the DOL would return to the traditional emphasis on a control–based analysis when evaluating the existence of joint employment. However, months passed, with no other word form DOL on the subject, leaving employers in limbo about DOL’s enforcement position.
On November 8, 2017, the U.S. House of Representatives passed HR 3441, the Save Local Business Act. The legislation would establish that joint employment could only be found if an entity “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over essential terms and conditions of employment” of a worker. The Senate took no action on this bill before the end of the 115th Congress, so this legislation died by operation of law.
The DOL’s April Fool’s Day NPRM incorporates the essence of the Save Local Business Act into the federal FLSA regulations. This is no joke. The NPRM will likely be welcomed by the business community, especially franchisors-franchisees, contractors, businesses that use staffing agencies, and similar entities.
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