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Joint Employers Getting More Scrutiny from U.S. Government Agencies

A recent Administrator's Interpretation from the U.S. Department of Labor, Wage and Hour Division suggests employers may be considered a joint employer in a variety of business models.
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Employers who use workers via a staffing agency may be considered a joint employer of those workers for purposes of wage and hour laws and perhaps other federal laws.

Several federal agencies, including the Department of Labor, have continued to focus enforcement efforts to mitigate the impact on workers of employers who try to shield themselves from liability through various business models. In January, the Labor Department's Wage and Hour Division issued Administrator's Interpretation 2016-1 to provide additional guidance concerning joint employment under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, which in general seems to imply a broad definition of joint employment under various organizational and staffing models.

“As the workplace continues to fissure, and as employment relationships continue to become more tenuous and murky, we will continue to identify where joint employment applies and to hold all employers responsible,” David Weil, the Wage and Hour Division's Administrator, wrote in an accompanying blog post.

“Economic forces and technological advances are increasingly causing businesses to share employees or use third-party management companies, independent contractors, staffing agencies, or other labor providers,” according to Weil. Such arrangements are especially prevalent in the construction, agricultural, janitorial, distribution and logistics, staffing, and hospitality industries.

Businesses are increasingly being held liable in joint employer relationships. For example, Pennsauken, N.J.-based J&J Snack Foods Corp. found itself paying $2.1 million last year in back wages and damages to 677 temporary production line workers hired by two staffing firms. J&J and the staffing firms were joint employers that had failed to pay minimum wage and overtime, according to the Labor Department.

The U.S. Department of Labor is not the only agency stepping up their enforcement efforts in this area. The National Labor Relations Board (NLRB) last year ruled that the mere ability to exercise control over an employee technically working for someone else, no matter whether that power is ever used, counts as joint employment.

The NLRB is also facing off against McDonald's in front of an administrative law judge, claiming that the fast food giant is a joint employer with its franchisees. According to The Wall Street Journal: “Depending on how it plays out, the dispute could make it easier for labor unions to organize fast-food workers, negotiate wages and expose franchisers in a range of industries — including auto parts and tax preparation — to greater liability in labor matters.”

For its part, the Labor Department describes two categories of joint employment under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act in its recent Administrator’s Interpretation: horizontal joint employment and vertical joint employment.

Horizontal joint employment takes place when an employee works for two separate employers that are sufficiently associated or related to each other with respect to the employee. For example, a dishwasher might work 40 hours a week at Joe's Burgers and 15 hours a week at Joe's Pizza. But if the same Joe owns the burger joint and the pizza place, that dishwasher may be entitled to an overtime pay premium for hours worked over 40 in a workweek, 15 hours in this example. Association does not have to be shared ownership. Other factors may also be considered, including whether there is an arrangement between two entities to share employees, or overlapping officers, executives or managers. 

Vertical joint employment can take place when a company is using employees from another intermediary employer such as a staffing agency or a contractor. In this case, the relationship that is considered is the one between the company and workers. A manufacturer, for example, might use a staffing agency to hire people to work on its factory line. Even though those workers technically get their paychecks from the third party staffing agency, the Labor Department might still consider the manufacturer a joint employer depending on the facts and circumstances of the employment relationship. For example, where the manufacturer has direct everyday supervision over the workers, is able to fire or discipline them, keeps them long-term, and where the workers are on the manufacturer’s premises and/or they perform work integral to the business, the workers may be considered jointly employed by the staffing agency and the manufacturer. And both parties would be responsible for ensuring the employees are paid in compliance with applicable wage and hour laws.

It is important for employers to be aware that federal agencies are scrutinizing companies' staffing practices, perhaps more closely than they were previously, and companies that use staffing agencies and other business models to take on workers may be considered more responsible for how those workers are treated and compensated than they may have thought.

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