Employers should be aware of U.S. Department of Labor Administrator’s Interpretation No. 2016-1, recent guidance discussing joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MWPA). The Interpretation highlights that joint employment has become more common in recent years, and describes in detail the Wage and Hour Division’s standards for determining when two or more businesses are joint employers under an expansive “as broad as possible” definition. A determination that two employers are joint employers is significant because each employer is jointly and severally liable for violations of the FLSA’s minimum wage and overtime requirements. DOL investigations consider joint employment in hundreds of investigations every year.
Although the Interpretation highlights the staffing, hospitality, construction, janitorial, and agricultural industries, it is written in a way to suggest that the DOL intends to apply the broad standard to employers in all industries. Employers should expect that the DOL will use this Interpretation to increase aggressive enforcement by its investigators. Less clear is what effect this will have in the courts, where the Interpretation is not entitled to judicial deference.
What Should Employers Know?
The Interpretation first defines the two types of joint employment under the FLSA and the MWPA: horizontal and vertical. While the analysis related to each are separate, aspects of both horizontal and vertical joint employment may be present in a single joint employment relationship.
Horizontal Joint Employment
Horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee. Determining whether horizontal joint employment exists focuses on the relationship of the employers to each other. The DOL’s Wage and Hour Division’s web site includes a graphical illustration of horizontal joint employment. An example would be a server who works for two separate restaurants that are operated by the same entity with managers at each restaurant that coordinate the server’s schedule between the two restaurants and share supervisory authority over the server.
The Interpretation identifies a non-exhaustive list of nine factors that the DOL considers when evaluating horizontal joint employment that is derived from its regulations (29 Code of Federal Regulations § 791.2(b)), prior Wage and Hour Opinion Letters dated June 14, 2005 and April 11, 2005, and case law. The factors, as listed in the Interpretation, are as follows:
- who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
- do the potential joint employers have any overlapping officers, directors, executives, or managers;
- do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
- are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
- does one potential joint employer supervise the work of the other;
- do the potential joint employers share supervisory authority for the employee;
- do the potential joint employers treat the employees as a pool of employees available to both of them;
- do the potential joint employers share clients or customers; and
- are there any agreements between the potential joint employers.
Importantly, not all, or even most, of these factors must be present for joint employment to exist. Rather, the DOL will use the factors to help determine if there is sufficient indication that the potential joint employers are associated with respect to the employee.
Vertical Joint Employment
Vertical joint employment exists where the employee has an employment relationship with one employer and the economic realities show that the employee is economically dependent on another entity involved in the work. Determining whether vertical joint employment exists focuses on the economic realities of the working relationship between the employee and the potential joint employer. The DOL’s Wage and Hour Division’s web site also includes a graphical illustration of vertical joint employment. An example would be an employee placed by a staffing company to provide labor to a warehouse and the warehouse directs the employee’s work and sets the employee’s hours.
The Interpretation highlights that the vertical joint employment analysis is based on the economic realities of the working relationship, and cannot focus solely on control. It lists seven factors from the MSPA regulations to use when analyzing whether the required economic dependency exists, as follows:
- whether the potential joint employer directs, controls, or supervises the work performed;
- whether the potential joint employer has the power to control the employee’s employment conditions, including the power to hire or fire employees, determine the rate of pay, and/or modify employment conditions;
- whether the potential joint employer has an indefinite, permanent, full-time, or long-term relationship with the employee;
- whether the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training;
- whether the employee’s work is an integral part of the potential joint employer’s business;
- whether the employee performs the work on a premises owned or controlled by the potential joint employee; and
- whether the potential joint employer preforms human resources and labor functions commonly performed by employers.
When setting forth these factors, the Interpretation expressly rejected appellate court decisions that address only or primarily the potential joint employer’s control over the employee, stating that this approach is not consistent with the breadth of employment under the FLSA.
What Does This Mean For Employers?
Employers should consider the Interpretation as a reminder that the DOL Wage and Hour Division will be looking closely at potential joint employment relationships using an expansive and broad definition. Employers should think carefully about whether the DOL may view them as a joint employer of workers they do not consider to be their employees, even if they do not control those employees.
Nevertheless, employers may not feel the legal impact of the Interpretation for several years. The interpretation is guidance—not a law or a regulation—and is not binding on the courts. Massachusetts employers should take note that the First Circuit disagrees with the economic realities test set out in the Interpretation. As set out in Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d 688 (1998), the First Circuit looks to the factors that address the potential joint employer’s control: the power to hire and fire the employees, supervision and control of the employee work schedules and conditions of employment, determining the employee’s rate and method of pay, and the maintenance of employment records.
Finally, employers should expect that employees will be empowered in their self-advocacy efforts following outreach by the DOL to educate employees about joint employment. In addition to the vertical and horizontal joint employment illustrations, the Wage and Hour Division’s web site includes a section about joint employment with FAQ’s and recent news about its enforcement activities.