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DOL Issues Final Joint Employment Rule

Labor & Employment Alert Christopher L. Nickels

On January 13, 2020, the Department of Labor (“DOL”) issued a final rule setting forth its interpretation of joint employment under the Fair Labor Standards Act (“FLSA”). This rule is particularly important for franchisors, staffing agencies, third-party management companies and labor providers, whose business models call for multiple entities having some amount of interaction or influence over a group of workers. While employers in these industries will very much welcome this new rule, as noted below, there remain questions as to how much deference the new rule will be given by courts.

DOL's Four Qualifying Factors for Joint Employment
The DOL’s final rule identifies four key factors that it will analyze for whether a business qualifies as a joint employer of a group of workers. The test looks at whether the potential joint employer:

  • hires or fires the employee;
  • supervises and controls the employee’s work schedule or conditions of employment;
  • determines the employee’s rate and method of payment; and
  • maintains the employee’s employment records.

Where two or more businesses are found to be joint employers under the FLSA, they share responsibility for workers’ wages, and are jointly liable for FLSA violations such as failure to pay minimum wages and overtime pay.

Notably, the DOL stated that a company’s business model, such as a franchisor-franchisee relationship, does not itself indicate joint employer status under the FLSA. DOL also addressed the issue of reserved control, in which one entity reserves some authority to potentially influence the employees of a business partner. Reserved control was considered indicative of joint employment in many of the rules and interpretations promulgated under the Obama administration. DOL now states that the potential joint employer’s reserved right to act in relation to the employee may be relevant for determining joint employer status, but that the joint employer must have actually exercised one or more of the four control factors noted above, either directly or indirectly.

Common Examples of Indirect Influence Will Not Result in Joint Employment
The final rule makes clear that a potential joint employer’s indirect influence will not be found where the company requires its business partners to comply with specific legal obligations. For example, a manufacturer may require its staffing company to comply with its obligations vis-à-vis the staffing company’s employees under the FLSA; to institute sexual harassment policies; require background checks; or establish workplace safety practices and protocols. These actions will not result in a joint employment finding between the manufacturer and its staffing company absent the manufacturer exercising one or more of the control factors noted above. Similarly, a franchisor that provides its franchisees with access to certain proprietary software for business operation or payroll processing, as well as sample employment applications and other forms and documents for use in operating the franchise, such as sample operational plans, business plans, and marketing materials, will not result in a joint employment finding between the franchisor and franchisee.

DOL's Rule Not Binding on Courts
Importantly, the legal effect of the DOL’s rule is not entirely clear. The rule establishes how the DOL itself will determine joint employment when investigating and prosecuting wage and hour violations under the FLSA. The rule is not binding on courts, who may have developed their own tests for determining joint employment status under the FLSA. While this new DOL rule will receive a warm welcome from employers, it does not provide a bright-line defense to allegations of joint employment. Moreover, the rule is limited to interpretation of the FLSA only, and does not speak to the tests for joint employment promulgated by other agencies such as the National Labor Relations Board or the Equal Employment Opportunity Commission.

For more information or assistance complying with the FLSA or your state wage and hour law requirements, please contact your Quarles & Brady attorney or: