“As broad as possible.” This is how the U.S. Department of Labor Wage and Hour Division (DOL) recently described the scope of employment relationships and joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
On January 20, the DOL weighed in on the hot topic of joint employment. The new guidance takes an expansive view of the types of business arrangements that may result in companies being classified as joint employers. The joint employment test in this guidance under the FLSA (and the MSPA) is the broadest interpretation of joint employment yet—broader than the test under the National Labor Relations Act (NLRA) and under the Occupational Safety and Health Act (OSHA). This is because the DOL will often look to joint employment to achieve statutory coverage under the FLSA by adopting the broad definition of “employ” to include “to suffer or permit to work.”
In the guidance, the DOL opined that joint employment may be “horizontal” or “vertical.” Horizontal joint employment may exist when two employers each separately employ an employee and are sufficiently associated with or related to each other with respect to the employee. The focus of the horizontal joint employment analysis is the relationship between the two employers. According to the DOL, examples of horizontal joint employment may include separate restaurants that share economic ties and have the same managers controlling both restaurants, or home health care providers that share staff and have common management. The DOL also provided factors that should be considered when determining whether horizontal joint employment exists:
- 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.
Vertical joint employment, on the other hand, may exist when an employee of one employer is also, with regard to the work performed for that employer, economically dependent on another employer. The vertical joint employment analysis, unlike the horizontal joint employment analysis, examines the economic realities of the relationships to determine whether the employees are economically dependent on the potential joint employers and are thus their employees. In vertical joint employment situations, the other employer typically has contracted or arranged with the employer to provide it with labor or perform some employer functions, such as hiring and payroll. The DOL provided the following examples of situations where joint employment may arise: garment workers who are directly employed by a contractor who contracted with the garment manufacturer to perform a specific function; or nurses placed at a hospital by staffing agencies. The DOL also included factors to be considered when determining whether a vertical joint employment relationship exists. These factors include the following:
- who directs or supervises the work performed and who controls the employment conditions;
- is the relationship permanent;
- is the work repetitive or rote;
- is the work integral to the potential joint employer’s business;
- is the work performed on the potential joint employer’s premises; and
- does the potential joint employer perform administrative functions commonly performed by employers (e.g., handling payroll, providing worker’s compensation insurance, providing tools and equipment).
What does this mean for employers? This guidance indicates that the DOL remains focused on the issue of joint employment and applying a broad definition of employment in enforcement actions. If a joint employment relationship exists, all joint employers are liable for failing to comply with wage and hour laws. Businesses that have relationships with workers that are analogous to the horizontal or vertical joint employment scenarios should revisit those arrangements and focus on the factors in the latest guidance to determine whether there is potential liability as joint employers.