DOL Issues Administrative Interpretation Broadening Test for Joint Employment
Earlier this week, the federal Department of Labor issued a new administrator’s interpretation (No. 2016-1) providing “additional guidance” for determining when an employee is considered “jointly employed” by two or more employers for purposes of the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Workers Protection Act (MSPA). The guidance is lengthy and sets forth a number of factors to consider in assessing whether a joint employment relationship exists, but the net effect of the guidance is (unsurprisingly) to make the test more employee friendly and expand the circumstances under which joint employment status will be found. This guidance comes on the heels of another federal agency, the NLRB, expanding its own test for determining joint employment last year in Browning Ferris, and appears to be part of a federal agency trend of making it easier to sue businesses for labor violations on the part of their contractors.
Notably, the DOL administrative guidance is not “law” and is not binding on any court, but it certainly will be considered by courts (and may be given deference). More significantly, the guidance demonstrates how the DOL will approach its own assessment of potential joint employment relationships. A finding of joint employment is significant because a joint employer (e.g. the hirer of a labor contractor in some circumstances) can be held liable for the direct employer’s non-compliance with wage and hour laws.
The DOL guidance discusses two types of joint employment scenarios: “horizontal joint employment” and “vertical joint employment.” Horizontal joint employment is said to exist where an employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee that they are deemed to jointly employ the employee. Determining whether horizontal joint employment exists focuses on the relationship of the employers to eachother. Citing an existing FLSA regulation, the guidance explains that this type of joint employment relationship generally exists (1) where there is an arrangement between employers to share or interchange the employee's services; (2) where one employer acts directly or indirectly in the interest of another employer in relation tho the employee; and (3) where the employers are associated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by or is under common control with the other employer. The guidance identifies the following factors as relevant in analyzing the degree of association, and sharing of control, by potential horizontal joint employers:
- who owns the potential joint employers (i.e. does one employer own part or all of the other or do they have any common owners);
- do the potential joint employers have any overlapping officers, directors, executives, or managers;
- do the potential joint employers share control over operations (e.g. hiring, firing, payroll, advertising, overhead costs);
- are the potential joint employers' operations intermingled (e.g. is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
- does one potential joint employer supervise the work of the other;
- do the potential joint employers share supervisory authority for the employee;
- do the potential joint employers treat the employees as a pool of employees available to both of them;
- do the potential joint employers share clients or customers; and
- are there any agreements between the potential joint employers.
While the above factors are to be used in analyzing whether sufficient association or shared control support a finding of joint employment, the DOL emphasizes that not all or even most of the these factors need to be present for joint employment to exist. However, if the employers are “acting entirely independent of each other and are completely disassociated” with respect to an employee who works for both of them, then they are not joint employers. The guidance provides the following examples of situations where horizontal joint employment exists and does not exist:
“An employee is employed at two locations of the same restaurant brand. The two locations are operated by separate legal entities (Employers A and B). The same individual is the majority owner of both Employer A and Employer B. The managers at each restaurant share the employee between the locations and jointly coordinate the scheduling of the employee's hours. The two employers use the same payroll processor to pay the employee, and they share supervisory authority over the employee. These facts are indicative of joint employment between Employers A and B.”
“In contrast, an employee works at one restaurant (Employer A) in the mornings and at a different restaurant (Employer B) in the afternoons. The owners and managers of each restaurant know that the employee works at both establishments. The establishments do not have an arrangement to share employees or operations, and do not otherwise have any common management or ownership. These facts are not indicative of joint employment between Employers A and B.”
Obviously, one can envision a lot of scenarios that fall somewhere between the facts set forth in these two examples, and a determination of whether joint employment exists likely is going to depend on how an individual judge or agency representative comes out on balancing the factors set forth above.
As noted above, the DOL guidance discusses not only horizontal joint employment, but also vertical joint employment. Vertical joint employment refers to situations where an employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and (according to the guidance) the “economic realities” show that he or she is economically dependent on, and thus employed by, another entity involved in the work. The other employer, who typically contracts with the intermediary employer to receive the benefit of the employee's labor, would be the potential joint employer. Traditionally, in analyzing joint employment, many courts have focused heavily on the degree of control exercised by the alleged joint employer. The DOL guidance departs from a control-focused analysis and instead suggests that a broader “economic realities” focus is the proper analysis to determine whether joint employment exists. [Sound familiar? Probably so. Last summer, the DOL published guidance suggesting that a similar economic realities test, rather than a control test, be used to determine whether a worker is properly classified as an independent contractor or truly is an employee.]
According to the DOL guidance, examples of situations where joint employment might arise include garment workers who are directly employed by a contractor who contracted with the garment manufacturer to perform a specific function; nurses placed at a hospital by a staffing agency; or warehouse workers whose labor is arranged and overseen by layers of intermediaries between the workers and owner or operator of the warehouse facility. Importantly, the DOL guidance suggests that if the intermediary employer is actually an employee of the potential joint employer, then all of the intermediary's employees automatically are also employees of the potential joint employer too and there is no need to conduct a vertical joint employment analysis. Thus, if the intermediary employer is improperly classified as an independent contractor, all of its employees will be deemed employee's of the hirer of the contractor. For this reason, the DOL guidance suggests that the first step in the analysis is to determine if the intermediary employer is properly classified as an independent contractor (again, using a broad test that focuses on whether the intermediary is economically dependent on the hiring party as a matter of economic reality).
Once it is determined that the intermediary employer is not an employee of the entity with which it contracts to supply labor, the vertical joint employment analysis must be applied to determine whether the intermediary's employees are jointly employed by the recipient of the labor. Minimizing the traditional focus on control in the joint employment analysis, the DOL states that the analysis instead must be an economic realities analysis and not a control test. The guidance sets forth factors derived from regulations under the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) (not the FLSA) and states that these factors should be applied to determine the existence of vertical joint employment under the FLSA (and under the MSPA). These factors are as follows:
Directing, Controlling, or Supervising the Work Performed: To the extent that the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the potential joint employer. The potential joint employer's control can be indirect (i.e. exercised through the intermediary employer) and still be sufficient to indicate economic dependence by the employee.
Controlling Employment Conditions: To the extent that the potential joint employer has the power (directly or indirectly) to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control indicates that the employee is economically dependent on the potential joint employer.
Permanency and Duration of Relationship: An indefinite, permanent, full-time, or long-term relationship by the employee with the potential joint employer suggests economic dependence.
Repetitive and Rote Nature of Work: To the extent that the employee's work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training, those facts indicate that the employee is economically dependent on the potential joint employer.
Integral to Business: If the employee's work is an integral part of the potential joint employer's business, this fact indicates that the employee is economically dependent on the potential joint employer.
Work Peformed on Premises: The employee's performance of work on premises owned or controlled (leased) by the potential joint employer indicates that the employee is economically dependent on the potential joint employer.
The DOL guidance emphasizes that these factors are helpful and should be applied in assessing vertical joint employment relationships, but states that courts may apply varying additional or different factors as long as the “ultimate inquiry” focuses on economic dependence and is consistent with the “broad scope of joint employment under the FLSA and MSPA.” [In other words, when in doubt, find joint employment.]
The DOL provides, among others, the following examples of situations where vertical joint employment exists and does not exist:
“A laborer is employed by ABC Drywall Company, which is an independent subcontractor on a construction project. ABC Drywall was engaged by the General Contractor to provide drywall labor for the project. The General Contractor provides all of the training for the project. The General Contractor also provides the necessary equipment and materials, provides workers' compensation insurance, and is responsible for the health and safety of the laborer (and all of the workers on the project). The General Contractor reserves the right to remove the laborer from the project, controls the laborer's schedule, and provides assignments on site, and both ABC Drywall and the General Contractor supervise the laborer. The laborer has been continuously working on the General Contractor's construction projects, whether through ABC Drywall or another intermediary. These facts are indicative of joint employment of the laborer by the General Contractor.”
“A mechanic is employed by Airy AC & Heating Company. The Company has a short-term contract to test and, if necessary, replace the HVAC systems at Condor Condos. The Company hired and pays the mechanic and directs the work, including setting the mechanic's hours and timeline for completion of the project. For the duration of the project, the mechanic works at the Condos and checks in with the property manager there every morning, but the Company supervises his work. The Company provides the mechanic's benefits, including workers' compensation insurance. The Company also provides the mechanic with all the tools and materials needed to complete the project. The mechanic brings the equipment to the project site. These facts are not indicative of joint employment of the mechanic by the Condos.”
Again, one can envision many business arrangements that fall somewhere in between these two examples, leaving a lot of gray area for when a joint employment relationship will be found to exist or not exist. However, the guidance seems to strongly suggest that where the DOL's Wage and Hour Division is the decision-maker, a finding of joint employment is more likely than not, as the DOL guidance repeatedly states that the joint employment analysis must be made with consideration of the FLSA's “expansive definition of 'employ' as including 'to suffer or permit to work'” and the broad “remedial purposes” of the FLSA and MSPA. Indeed, the guidance expressly states that “WHD may consider joint employment to acheive statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations.”
It is unclear how much deference will be given to this new DOL administrative interpretation by courts. However, employers who contract for labor or have labor sharing arrangements with related entities, should read the guidance and examine their labor arrangements to assess joint employment considerations.