On January 20, the Department of Labor’s Wage and Hour Division (WHD) issued new guidance on joint employment under the Fair Labor Standards Act (FLSA). The guidance marks the third time in recent years that WHD has stressed the broad definition of “employment” under the FLSA, following June 2014 guidance on joint employment in the home health care industry and July 2015 guidance on misclassification of employees as independent contractors. WHD’s consistent focus reiterates that the agency believes that many workers are classified incorrectly and will focus its enforcement activity on these areas.
Where joint employment exists, the employee’s work for both employers is aggregated for purposes of FLSA rights. In other words, if an employee works 30 hours in a week for one employer and 30 hours for another, the employee will be entitled to 20 hours of overtime if the employers are deemed joint employers. Further, joint employers are jointly and severally liable for FLSA violations, meaning that either entity can be held responsible for the full amount of wages or other liability unless they have contracted otherwise.
WHD is particularly interested in joint employment because “fissured workplaces,” where entities share employees, utilize staffing agencies, or contract out segments of their business, have become increasingly common. These arrangements add complexity to the contours of the employer/employee relationship and, in WHD’s view, create opportunities for workers to lose statutory protections.
In its January guidance, WHD discussed two types of joint employment — horizontal and vertical.
Horizontal joint employment may exist where an employee is directly employed by two separate entities, but the entities are associated (e.g., a waitress who splits time between two separate franchises of a restaurant). The horizontal analysis focuses on the relationship between the two employers. Of course, many individuals work multiple jobs with two or more entirely separate, independent employers, which does not create joint employment. But WHD’s guidance is a cautionary reminder that where there is some connection or relationship between the two employers, joint employment may be found.
Vertical joint employment, on the other hand, may occur where an employee is directly employed by an intermediary entity, such as a staffing agency or subcontractor, but the “economic realities” of the work performed demonstrate that the employee is “economically dependent” on another entity that receives some benefit from the work. The vertical analysis focuses on the relationship between the employee and the potential joint employer. As it did in its July 2015 guidance regarding misclassification, WHD stressed that the analysis should not be limited to the potential joint employer’s “control” over the employee. The scope of joint employment under the FLSA is thus broader than under the common law, where an employment relationship depended entirely on the amount of control exercised by the employer.
WHD’s guidance suggests that the agency is likely to increase its enforcement of potential joint employment arrangements. The guidance also could give rise to private FLSA lawsuits motivated by WHD’s discussion of the range of scenarios that can create joint employment. Accordingly, employers should review any arrangements relating to their workers that could fall within the newly-clarified scope of vertical or horizontal joint employment.
Finally, employers should note that although WHD has made clear that the FLSA test for an employment relationship broadens and departs from the common law test, the common law test remains the relevant test for employee benefit plan coverage, tax, and other purposes. This would be a good opportunity to review contracts with staffing agencies and other potential co-employers to ensure that responsibility for FLSA obligations, employee benefit plan coverage, tax withholding, employment tax, Affordable Care Act reporting, and similar obligations have been properly allocated between the parties.