This week, another regulatory agency staked a position on the emerging issue of joint employer liability. In a January 20, 2016 Administrator’s Interpretation, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) issued a very broad interpretation of joint employment for the purposes of the Fair Labor Standards Act (FLSA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The Interpretation also links more directly the factors under the two statutes for determining joint employer status.
WHD joins the National Labor Relations Board (NLRB), which ruled last fall that employees may have multiple employers for the purposes of the National Labor Relations Act (NLRA). The upshot of the Interpretation is that the WHD intends to focus greater scrutiny on employment arrangements involving multiple businesses.
In the Interpretation, WHD explains that its enforcement efforts have uncovered a growing number of work arrangements where multiple businesses are involved in performing work and using workers. WHD describes the shift as economy-wide, but suggests it is most common in construction, janitorial, logistics, staffing and hospitality work. Much like the NLRB’s announced concern with economic fragmentation, WHD declares that changing workplace structures call for broadening the definition of employer. Such a definition raises the specter of including all the businesses involved in a given project or line of business, rather than just the nominal employer.
WHD provides two analyses to determine whether otherwise separate businesses might be considered joint employers of the same workers: (1) horizontal joint employment and (2) vertical joint employment. According to the Interpretation, horizontal joint employment may be found where an employee works for two separate but closely related entities, while vertical joint employment occurs when an employee works for one entity, but that entity is so economically dependent on or intertwined with another superior entity that the latter may be considered as having control over the nominal employer.
The key inquiry in a horizontal joint employment case is the degree to which the nominal employer and proposed joint employer are associated. WHD sets forth the following factors for the horizontal joint employment analysis: The extent to which the proposed joint employer (1) benefits simultaneously from the employee’s work, (2) acts as an employer with respect to the employee, and (3) exercises control with respect to the employee.
The Interpretation provides the following example of a horizontal employment arrangement. A waiter works for two locations of the same restaurant, which, while legally separate entities, are both owned by the same person. Additionally, the two locations coordinate the employee’s work hours. WHD suggests this would be considered a horizontal joint employment relationship. Consequently, the hours the employee works at each location are aggregated for the purposes of the FLSA and each location is jointly and severally liable for all wages and overtime.
In analyzing whether vertical joint employment exists, WHD will focus on the relationship between the proposed joint employer and the employee(s) at issue, and not as much on the relationship between the two business entities. This analysis involves the extent to which a superior employer exercises economic power or otherwise controls the employees of the intermediary nominal employer, such as in a general and subcontractor relationship.
For example, WHD will use the following factors in considering whether a vertical joint employment relationship exists:
WHD provides the example of a general contractor and an independent subcontractor working on a construction jobsite. Where the general contractor controls the jobsite, provides all equipment and materials, controls the work schedule, and reserves the right to remove subcontractor workers from the site, WHD concludes that the general contractor will be a joint employer of the independent subcontractor’s employees. As with the horizontal joint employer situation, the joint employers would be jointly and severally liable for wages, overtime, and other requirements of the FLSA.
Takeaway: The new Interpretation provides a broad definition of joint employer status, consistent with WHD’s repeated emphasis on expanding responsibility for employee work practices in the “fissured workplace.” WHD issued its Interpretation in a field that is crowded with multiple federal circuit court opinions defining joint employer status under the FLSA and MSPA. WHD seeks to harmonize its Interpretation with some of those circuits, but criticizes, and in some cases outright disagrees with, other circuit court frameworks for analyzing joint employer status.
Thus, employers faced with claims of joint employer status that rely on DOL’s Interpretation should carefully evaluate the controlling federal court authority in assessing their risks. Regardless, employers should review all employment arrangements where work is conducted in conjunction with other businesses and their employees to evaluate compliance with the new Interpretation.