“Are you my employer?” Department of Labor clarifies joint employer status with new final rule

On January 16, 2020, the Department of Labor (DOL) published a final rule that brings much-needed clarity to employers on how to determine “joint employer” status under the Fair Labor Standards Act (FLSA) when an employee performs work for two or more entities.

A finding of joint employment has significant consequences, as each employer can be held jointly and severally liable for wage and hour obligations to the employee, for example, payment of minimum wage and overtime.

The final rule, which becomes effective March 16, 2020, provides a new four-factor balancing test, asking 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.

Importantly, no single factor is dispositive in determining joint employer status, and the weight of each of the factors will vary based on the facts of each case. The final rule notes that additional factors may also be relevant in determining whether another person is a joint employer in this situation but only when they show whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work.

The final rule also identifies factors that are not relevant to the determination of FLSA joint employer status. For example, the final rule specifies that whether or not the employee is economically dependent on the potential joint employer is not relevant to determine joint employer liability. The final rule also identifies other factors that do not make joint employer status more or less likely, including:

• operating as a franchisor or using a similar business model;
• the potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or meet certain standards to protect the health or safety of its employees or the public (e.g., criminal background checks);
• the potential joint employer’s practice of providing the employer with a sample employee handbook or other forms; and
• The potential joint employer’s practice of allowing the employer to operate a business on its premises (e.g., cafeteria vendor within a hospital).

The final rule largely tracks the DOL’s proposed joint employer rule published April 2019.  The National Labor Relations Board and the Equal Employment Opportunity Commission are both expected to follow the DOL’s lead and release their own proposed joint employer rules in upcoming months.

Employers are advised to review any possible joint employment arrangements in light of the four-factor test and consult with legal counsel to ensure compliance with the FLSA’s wage and hour requirements.