The U.S. Department of Labor (DOL) has issued guidance warning employers that ''joint employment'' has become more common in light of the growing variety of business models and labor arrangements in today's economy. DOL Wage and Hour Division Administrator David Weil’s guidance, issued January 20, 2016, provides direction on identifying those scenarios in which two or more employers will be viewed as jointly employing a worker and are thus jointly liable for compliance under the Fair Labor Standards Act (FLSA) or the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The guidance first discusses the broad definition of employment under the FLSA and MSPA, and then examines the concepts of "horizontal" and "vertical" employment. Horizontal joint employment exists when two (or more) employers each separately employ a worker, but are so closely associated with or related to each other with respect to that employee that the hours worked by the employee for each of them are combined for the purpose of determining overtime due and whether minimum wage obligations are satisfied. The focus of a horizontal joint employment analysis is the relationship between the two (or more) employers. The guidance stresses that the following facts may be relevant when analyzing the degree of association between, and sharing of control by, potential horizontal joint employers:

  • Ownership of the potential joint employers (e.g., does one employer own part or all of the other or do they have any common owners?)
  • Overlapping officers, directors, executives, or managers
  • Shared control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)
  • Inter-mingled or related operations (for example, one administrative operation for both employers, or the same entity scheduling and paying employees regardless of the employer for whom they work)
  • Whether one potential joint employer supervises the work of the other
  • Sharing supervisory authority over employees
  • Whether the potential joint employers treat the employees as a pool available to both entities
  • Sharing clients or customers
  • Agreements between the employers.

This is not an all-inclusive list, and not all of these facts need be present for horizontal joint employment to exist.

On the other hand, vertical joint employment exists when an employee of one employer—the ''intermediary employer''—is economically dependent on another employer, the ''potential joint employer'' for work being paid by the intermediary employer. The focus of a vertical joint employment analysis is on the economic reality of the relationship between the employee and the potential joint employer, and whether the employee is dependent on that potential joint employer. The guidance cites the following economic realities factors from the MSPA regulations as probative of the core question whether the employee is economically dependent on the potential joint employer who is benefitting from the work:

  • Whether the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight
  • Whether the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay
  • The degree of permanency and duration of the relationship of the parties
  • The extent to which the employee's work for the potential joint employer is repetitive and rote, and requires little training
  • Whether the activities performed by the employee are an integral part of the potential joint employer's business operation
  • Whether the work is performed on premises owned or controlled by the potential joint employer
  • The extent to which the potential joint employer performs administrative functions for the employee, such as handling payroll or providing workers' compensation insurance.
No one factor is dispositive, and the guidance instructs that additional or different economic realities factors beyond those listed in the MSPA regulation may also be important. 

The guidance comes on the heels of a strong and renewed focus by various state and federal agencies on joint employment and non-traditional employment arrangements including:

  • Weil's administrator's interpretation from July 2015, in which he alerted employers that ''most workers are employees'' under the FLSA's broad definitions
  • The NLRB's ruling in Browning-Ferris Industries from August 2015, in which the Board considered ''indirect control'' to be a key factor in determining whether a joint employer relationship existed under the National Labor Relations Act
  • OSHA's re-consideration of its joint employer standard, also in August 2015

Like these earlier efforts, the DOL's new guidance potentially expands the scope of covered employment to include relationships and arrangements that many employers may not view as "employment," and, thus, increases the potential for unwary businesses to run afoul of the law.  Liability in such cases can be significant. For example, damages under the FLSA can include back overtime, attorney's fees, and liquidated damages in the amount of the overtime due.  Businesses with non-traditional work arrangements, such as independent contractors, temp agency employees, and management agreements should review the guidance and consult with experienced labor counsel to determine who may be the businesses' "employees."

Ballard Spahr's Labor and Employment Group routinely assists employers in ensuring compliance with the FLSA, MSPA, and other federal, state, and local statutes and regulations. Ballard Spahr Labor and Employment attorneys will present a webinar on this topic in the coming weeks. Additional details will be available soon.

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