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Client Alert: Joint Employment Clarified

On January 12, 2020, the U.S. Department of Labor (DOL) announced its Final Rule clarifying that employers must exercise “direct control” over employees to be a joint employer under the Fair Labor Standards Act (FLSA). The Rule is good news for employers; it sets a higher standard for plaintiffs seeking additional defendants in a wage and hour claim.  Employers who use staffing agencies, have franchise relationships, or use subcontractors will want to take special note.

The FLSA is the federal statute which requires covered employers to pay their employees at least the federal minimum wage for every hour worked and overtime for every hour worked over 40 in a workweek.  Under the FLSA, an employee may have, in addition to his or her employer, one or more joint employers.  If a joint employment relationship is found, each employer can be held liable for the full amount of wages owed to an employee.  For example, if a joint employment relationship exists, a company may be held liable for its subcontractor’s failure to pay overtime to employees of the subcontractor.

The Final Rule clarifies and narrows the definition of joint employer under the FLSA.  It sets out a four-factor balancing test that considers whether a potential joint employer exercises the power to:

• Hire or fire an employee
• Supervise and control an employee's work schedules or employment conditions
• Determine an employee's rate and method of pay
• Maintain a worker's employment records

No one factor is determinant and whether an employer is a joint employer will depend on the facts of each case.

The Final Rule also clarifies that the following factors do not make the joint employer status more or less likely under the FLSA:

• Having a franchisor business model
• Providing a sample employee handbook to a franchisee
• Requiring a business partner to establish minimum wages and workplace-safety, sexual-harassment-prevention and other policies
• Offering an association health plan or association retirement plan to the employees or participating in such a plan with the employer
• Participating in an apprenticeship program
• Enforcing compliance with quality control standards to ensure consistent brand

The clarification provided by the Rule will help employers better comply with the FLSA.  Employers who benefit from the work of persons whom they do not treat as their employees should review the balancing test carefully to confirm compliance.