The U.S. Department of Labor (“DOL”) has published a final rule, which takes effect on March 16, 2020, outlining the new four-factor approach DOL will use to determine whether, under the Fair Labor Standards Act (“FLSA”), a business is a “joint employer” of another company’s employees and thus jointly and severally liable for wage and hour obligations.  The new rule comes as good news for employers because it establishes a concrete and narrow standard for determining joint employer status and is expected to provide clearer guidance to federal courts making joint employer determinations.

The final rule represents the first time in 60 years that DOL has issued a joint employer rule, although over the decades it has issued guidance both expanding and contracting the scope of the definition and potential liability.  Furthermore, the rule is consistent with a series of actions that DOL, under the Trump administration, has taken to rescind the previously broader definition of “joint employer” under the Obama administration (including its June 7, 2017 withdrawal of employee-friendly Administrator’s Interpretation guidance documents from 2015 and 2016).

Notably, the rule is part of the current administration’s economic stimulus initiative.  DOL has indicated that the new rule is designed to “promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions and encourage innovation in the economy.”  In a DOL news release, Secretary of Labor Eugene Scalia explained that “[t]his final rule furthers President Trump’s successful, government-wide effort to address regulations that hinder the American economy and to promote economic growth.”

DOL’s new streamlined joint employer approach balances four factors to determine whether a business has sufficient control over another entity’s employees such that it should be considered a joint employer:

  1. Whether the business hires and fires the employees;
  2. Whether the business supervises and controls the employees’ work schedules or conditions of employment to a substantial degree;
  3. Whether the business determines the rate and methods of payment for the employees; and
  4. Whether the business maintains the employees’ employment records.

No single factor is controlling, with the weight of each to be considered on a case-by-case basis, and additional factors may be considered only if they indicate whether a putative joint employer is exercising significant control over the terms and conditions of the employee’s work.  This guidance significantly narrows the range of factors that courts may consider in conducting analyses.  The rule also makes clear that in order to be a joint employer under the FLSA, the potential joint employer must actually exercise–directly or indirectly–one or more of the four control factors.  The mere potential for an entity to exercise a certain amount of control over an employee is not enough to expose the entity to liability as a “joint employer”; rather, there must be a showing of actual exercise of such ability, power, or right.

In the ruling, DOL also highlighted certain factors that would not, in and of themselves, indicate joint employer status, including:

  • Existence of a franchisor business model;
  • Use of profit sharing or eventual hiring of temporary workers;
  • Dictating the specific location or timing of work;
  • Monitoring or ensuring compliance by suppliers, vendors, subcontractors, or franchisees with contractual obligations or with health, safety, or legal obligations;
  • Requiring, monitoring, and enforcing another business’s compliance with quality control standards; or
  • Providing business advice, benefits, or resources (for example, providing materials or suggesting methods that a franchisee, subcontractor, or other entity can use to improve business strategies or profitability).

Notably, NLRB and EEOC currently apply their own, different, standards for determining joint employment, although both agencies are expected to release updated rules in the coming months.  State law tests may vary as well.  To manage risks, businesses should continue to carefully monitor their relationships and contracts with other entities to ensure that they are not directly or indirectly exercising control over workers the business does not directly employ, and should consider whether other safeguards may be needed.  More information on DOL’s new rule is available on the agency’s website.

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Photo of Lindsay Burke Lindsay Burke

Lindsay Burke co-chairs the firm’s employment practice group and regularly advises U.S., international, and multinational employers on employee management issues and international HR compliance. Her practice includes advice pertaining to harassment, discrimination, leave, whistleblower, wage and hour, trade secret, and reduction-in-force issues arising…

Lindsay Burke co-chairs the firm’s employment practice group and regularly advises U.S., international, and multinational employers on employee management issues and international HR compliance. Her practice includes advice pertaining to harassment, discrimination, leave, whistleblower, wage and hour, trade secret, and reduction-in-force issues arising under federal and state laws, and she frequently partners with white collar colleagues to conduct internal investigations of executive misconduct and workplace culture assessments in the wake of the #MeToo movement. Recently, Lindsay has provided critical advice and guidance to employers grappling with COVID-19-related employment issues.

Lindsay guides employers through the process of hiring and terminating employees and managing their performance, including the drafting and review of employment agreements, restrictive covenant agreements, separation agreements, performance plans, and key employee policies and handbooks. She provides practical advice against the backdrop of the web of state and federal employment laws, such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave Act, the Fair Labor Standards Act, and the False Claims Act, with the objective of minimizing the risk of employee litigation. When litigation looms, Lindsay relies on her experience as an employment litigator to offer employers strategic advice and assistance in responding to demand letters and agency charges.

Lindsay works frequently with the firm’s privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups. She also regularly provides U.S. employment law training, support, and assistance to start-ups, non-profits, and foreign parent companies opening affiliates in the U.S.

Photo of Carolyn Rashby Carolyn Rashby

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. She conducts workplace investigations and cultural assessments, leads audits regarding employee classification, wage and hour, and I-9 compliance, advises on…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. She conducts workplace investigations and cultural assessments, leads audits regarding employee classification, wage and hour, and I-9 compliance, advises on employment issues arising in corporate transactions, and provides strategic counsel to clients on a wide range of workplace matters, including harassment and #MeToo issues, wage and hour, worker classification, employee accommodations, termination decisions, employment agreements, trade secrets, restrictive covenants, employee handbooks, and personnel policies. Her approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.