Who’s the Boss? U.S. DOL Issues Joint Employer Final Rule

Updated on Sept. 30, 2020: A federal district court judge ruled in New York v. Department of Labor that the U.S. Department of Labor (DOL) exceeded its regulatory authority when it issued its joint employer rule. The decision vacates the DOL’s test in the Southern District of New York (impacting the counties of New York City, Bronx, Westchester, Rockland, Putnam, Orange, Dutchess, and Sullivan) for vertical employment, when a worker enters into an employment relationship with one company but is economically dependent on another employer. The court did, however, preserve part of the joint employer rule; the horizontal employment test, when a worker enters into individual employment relationships with multiple businesses that are associated with each other.

Original article

When more than one unrelated business entity shares control over an individual employee or group of employees, who is the employer?

The U.S. Department of Labor (DOL) provided an answer to that question Jan. 12, 2020, announcing its final rule to revise and update it regulations interpreting joint employer status under the Fair Labor Standards Act (FLSA). The final rule will be effective March 16, 2020.

The FLSA requires a covered employer to pay a nonexempt employee at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 in a workweek. The FLSA also contemplates situations where additional individuals or entities are joint employers, and therefore jointly and severally liable for the wages due to an employee.

In 1958, the DOL put in effect a regulation (29 CFR part 791) to provide guidance on how to determine FLSA joint employer status. The department has not meaningfully revised this regulation since that time. While the DOL issued an Administrator's Interpretation (AI) concerning joint employer status, opining that joint employment should be defined expansively in 2016, in June 2017, it rescinded the AI.

Who is a joint employer under the FLSA?

The final rule specifies that when an employee performs work for the employer that simultaneously benefits another person, that person will be considered a joint employer when that person is acting directly or indirectly in the interest of the employer in relation to the employee.

The final rule provides a four-factor balancing test to determine when a person is “acting directly or indirectly in the interest of the employer in relation to the employee.” The four factors are:

1. Hires or fires the employee

2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree

3. Determines the employee’s rate and method of payment

4. Maintains the employee’s employment records

The DOL explains that no single factor solely can be used in determining joint employer status, and the weight to give each factor will vary depending on the circumstances. In fact, the DOL included a clarifying statement in the final rule that maintaining employment records alone will not lead to a finding of joint employer status.

In addition, the final rule provides that whether the employee is economically dependent on the potential joint employer is not relevant for determining the potential joint employer’s liability under the act.

Factors that do not make joint employer status more or less likely

The final rule provides several factors that will not make joint employer status more or less likely under the FLSA. They include:

• The potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public
• Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model
• The potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation
• The potential joint employer’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.

Joint employment beyond the DOL

The DOL’s final rule does not address “joint employer” status under any other federal employment law, including but not limited to the National Labor Relations Act (NLRA), the Employee Retirement Income Securities Act (ERISA), Title VII of the Civil Rights Act of 1964, or the Migrant and Seasonal Agricultural Worker Protection Act.

The National Labor Relations Board (NLRB) has issued a proposed rule related to joint employment status for collective bargaining and unfair labor practice purposes, with an anticipated final rule to follow. The Equal Employment Opportunity Commission (EEOC) announced in late 2019 that it planned to propose its own rule clarifying when an employer should be classified as a joint employer under federal anti-discrimination laws, such as Title VII, the Age Discrimination in Employment Act (ADEA), or the Americans with Disabilities Act (ADA). At this time, the EEOC has not published a proposed rule on joint employment.

What's next?

Paychex will continue to monitor any additional guidance related to joint employer status provided by federal agencies and recommends that businesses review whether they are subject to one or more state joint employment rules. While some states do not have any laws or regulations related to joint employment, others vary depending on the specific enforcing agency within that state.

Paychex understands the complexities of trying to stay up-to-date with regulations that impact your business and offers HR solutions and services to help make it simpler for employers to focus on running their business.

Additional resources

The DOL has published a Fact Sheet and a Frequently Asked Questions document.