The Department of Labor is at it Again: DOL’s New Interpretation Makes Joint Employment “As Broad As Possible” Under FLSA
Labor & Employment Alert 01/28/16 Sean M. Scullen, Michael Aldana, David B. Kern
The Department of Labor (DOL) continues to actively address what it considers the changing nature of the "traditional employment relationship." On January 20, 2016, the DOL issued yet another Administrator Interpretation (AI), this time providing guidance as to joint employment under the Fair Labor Standards Act (FLSA). In its guidance, the DOL noted its intent to ensure that "the scope of employment relationships and joint employment under the FLSA … is as broad as possible."
The DOL's View on Joint Employment
Noting that the "traditional employment relationship of one employer employing one employee is less prevalent," the DOL's AI seeks to address the increasing use of businesses "sharing or using third-party management companies, independent contractors, staffing agencies, or labor providers." In doing so, the DOL departs from its traditional joint employment tests and espouses two types of joint employment: (1) horizontal joint employment; and (2) vertical joint employment. Horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related. Vertical joint employment exists where the employee has an employment relationship with one employer (e.g., staffing agency, subcontractor, or labor provider) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work (potential joint employer). In analyzing whether a horizontal or vertical joint employment relationship exists, the AI states that the relationship agreed upon by the potential joint employers is not relevant to the determination of joint employment status.
Horizontal Joint Employment
The horizontal joint employment analysis focuses on the relationship between the two potential joint employers. To determine whether a horizontal joint employment relationship exists, the DOL looks at the following factors:
- Who owns the potential joint employers;
- Whether the potential joint employers have any overlapping officers, directors, executives, or managers;
- Whether the potential joint employers share control over operations;
- Whether the potential joint employers’ operations are intermingled;
- Whether one potential joint employer supervises the work of the other;
- Whether the potential joint employers share supervisory authority for the employee;
- Whether the potential joint employers treat the employees as a pool of employees available to both of them;
- Whether the potential joint employers share clients or customers; and
- Whether there are any agreements between the potential joint employers.
Vertical Joint Employment
Unlike the horizontal joint employment test that focuses on the association between the potential joint employers, the vertical joint employment test examines the economic realities of the relationship between the employee and the potential joint employer. In evaluating the economic realities, the DOL states that it will look at the following seven factors related to economic dependence:
- The extent to which the work performed by the employee is controlled or supervised by the potential joint employer "beyond a reasonable degree of contract performance oversight";
- The extent to which the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay;
- Whether the relationship is indefinite, permanent, full-time, or long-term;
- Whether the work is repetitive and rote, is relatively unskilled, and/or requires little or no training;
- Whether the work is integral to the potential joint employer's business;
- Whether the work is performed on the potential joint employer's premises; and
- The extent to which the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers' compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work.
Similar to the DOL's analysis for independent contractors,1 the DOL has rejected "control" as the standard for determining employment, stating that any vertical joint employment analysis "must look at more than the potential joint employer's control over the employee." Indeed, the DOL's economic realities test for joint employers states that joint employment can be found even "where the alleged [joint] employer exercised little or no control or supervision over the putative employees."
What Does This Mean For Employers?
The DOL's latest AI makes clear that it intends to aggressively pursue potential joint employment relationships, particularly in areas involving staffing agencies and other labor providers. Thus, to the extent an employer shares employees with a related employer, or uses staffing agencies, subcontractors, labor providers, or other intermediaries to perform work at its facility, it should be prepared for claims for joint employment under the FLSA and unpaid wages for employees that had never previously been contemplated.
Accordingly, employers sharing employees with a related employer, or using third-party labor should evaluate their circumstances to ensure they are prepared in case the DOL comes calling.
For more information or assistance complying with the FLSA or related state wage and hour laws, or dealing with joint employer issues, please contact Kerry M. Mohan at (608) firstname.lastname@example.org, Sean M. Scullen at (414) email@example.com, Michael Aldana at (414) firstname.lastname@example.org, David B. Kern at (414) email@example.com, or your Quarles & Brady attorney.
1 Similar to its analysis of independent contractors, the DOL uses an economic realities test to determine whether a vertical joint employment relationship exists. However, unlike the economic realities test for independent contractors, the DOL's economic realities test for joint employment does not focus on whether the individual is in business for him or herself.