Joint Employer Status Updates Proposed

Ellen Kearns, partner with leading national labor and employment law firm (and ThinkHR strategic employment law partner) Constangy, Brooks, Smith & Prophete, LLP, explains proposed regulations clarifying joint employer status under the FLSA.

On April 1, the U.S. Department of Labor (DOL) issued proposed regulations to clarify its interpretation of joint employer status under the Fair Labor Standards Act (FLSA).

The DOL proposes a four-factor test to determine whether an entity would be considered a “joint employer” under the FLSA. The potential joint employer would have to actually exercise the power to

• Hire or fire the employee;
• Supervise and control the employee’s work schedules or conditions of employment;
• Determine the employee’s rate and method of payment; and
• Maintain the employee’s employment records.

In proposing to adopt the four-factor test, the DOL relied on the 1983 decision in Bonnette v. California Health & Welfare Agency, with one critical exception. In Bonnette, the U.S. Court of Appeals for the Ninth Circuit found that “regardless of whether the appellants are viewed as having had the power to hire and fire, their power over the employment relationship by virtue of their control over the purse strings was substantial.” In other words, if the employer had the authority to hire and fire, it was a joint employer, whether or not that authority was ever actually exercised.

Under the proposed regulations issued yesterday, the right to hire and fire cannot be a “reserved” power or contractual right. According to the preamble of the proposed regulations, “Only actions taken with respect to the employee’s terms and conditions of employment, rather than the theoretical ability to do so under a contract, are relevant to joint employer status under the Act.” (Emphasis added.)

The proposed regulations include nine examples that the DOL hopes will “further help clarify joint employer status.” The examples involve workers at restaurants (both franchised and non-franchised), janitorial service workers at an office park, landscaping employees at a country club, staffing agency employees at a packaging company, a large national chain that requires its suppliers to sign a code of conduct, a global hotel franchisor and one of its hotel franchisees, and a subcontractor in a large retail store.

If there is a “joint employer” relationship under the FLSA, then both employers can be legally responsible for any violations of the law. In addition, employees who work for joint employers are entitled to pay for all hours worked for both employers, meaning that they are much more likely to be entitled to overtime pay in a given workweek.

Get Expert Opinion and Advice

Read the DOL examples to get a sense of how the agency intends to implement its new regulations. Join us on April 16 as Ellen Kearns and Renee Farrell explain the proposed joint employer regulations along with changes to the overtime rule, gig worker classifications, tip changes, and other hot wage and hour issues, in an informative webinar eligible for SHRM and HRCI credit. Can’t make the webinar? Register anyhow and we will send a link to the recording and resources after the webinar.