THE DOL TAKES ITS TURN WITH JOINT EMPLOYMENT

You may have heard that the concept of joint employment is getting its share of recent attention.  First, the NLRB got involved, with its decision in Browning-Ferris industries, which we wrote about here.  OSHA and the EEOC have been poking around in the area, too.  Now, it appears to be the Department of Labor’s turn. 

On January 20, 2016, the Department’s Wage and Hour Division (“WHD”) released an Administrator’s Interpretation (“AI”) regarding joint employment under the Fair Labor Standards Act (“FLSA”) and Migrant and Seasonal Agricultural Worker Protection Act.  The AI is aimed at addressing what the WHD perceives to be a growing problem with “fissured workplaces” and contends that as a result of economic pressures and technological advances, more businesses have changed their organizational and staffing models by sharing employees or using third-party management companies, independent contractors, staffing agencies, or other labor providers.

Notably, the AI specifically singled out the construction, agricultural, janitorial, warehouse and logistics, staffing, and hospitality industries as those where these models are most commonly seen, and then described in detail how it will treat joint employment scenarios.  If you like your dessert first, we can save you the trouble:  Not surprisingly, the DOL is likely to assess the concept of joint employment broadly, and to do so consistently with the other government agencies that have sought to expand the concept.  Basically, that means more companies will be considered employers, which means greater applicability of the FLSA.  While the AI does not have the same force of law or regulation, it is important to understand since it reflects the view of the head of the agency, which is how the DOL is likely to pursue enforcement.  Let’s take a deeper look at the AI.

To begin with, it is worth remembering that the WHD and the courts have long recognized that an employee can have two or more employers.  When multiple employers jointly employ an employee, the employee’s hours worked for all joint employers during the workweek are aggregated and considered as one employment.  Thus, if a nonexempt employee works more than 40 hours in the aggregate for the joint employers, then he or she is entitled to overtime compensation.  In addition, when a joint employment relationship exists, all of the joint employers are jointly and severally liable for compliance with the FLSA.  This means that each joint employer is individually responsible for the entire amount of wages due.

In the AI, the WHD explained the contours of the two forms of joint employment relationships – horizontal joint employment and vertical joint employment.  In some situations, both the horizontal and vertical forms can be present.

In a horizontal joint employment relationship, there usually is an established employment relationship between the employee and each employer.  Typically, the employee performs separate work or works separate hours for each employer.  The focus in this situation is on the relationship between the two employers.  An example is when an employee works for two separate restaurants that share economic ties and have the same management controlling both restaurants.

According to the WHD, the following factors are relevant to proving a horizontal joint employment relationship:

  • Who owns the potential employers?
  • Do the potential joint employers share officers, directors, executives, or managers?
  • Do the potential joint employers share control of operations, such as hiring, firing, payroll, advertising, and costs?
  • Are the employers’ operations inter-mingled?
  • Does one potential employer supervise the work performed for the other potential employer?
  • Do the potential joint employers share supervisory authority?
  • Do the potential joint employers treat employees as a pool available to both?
  • Do the potential joint employers share customers?
  • Are there any agreements between the potential employers?

The AI cites as an example an employee who works at two locations of the same restaurant brand owned by a single entity.  Although the two locations are separate, the entities operating them are owned by the same company.  Managers at the restaurants share employees and coordinate scheduling.  Both use the same payroll processor.  In this hypothetical, the two entities are likely joint employers.  Thus, for a non-exempt employee, the hours worked at the two restaurants would need to be added together; once the employee worked more than 40 hours in the aggregate, then the employee would be entitled to overtime compensation.

The AI recognizes that there is no joint employment relationship if the employers “are acting entirely independently of each other and are completely disassociated” with respect to the employee who works for both entities.  In that scenario, each employer may disregard the work performed by the other entity when determining whether overtime is owed.

Vertical joint employment exists when the employee has an employment relationship with one employer (such as a staffing agency, subcontractor, labor provider, or other intermediary) and the economic realities show that he or she is economically dependent on another entity involved in the work.  This other entity is a joint employer.  Typically, the other entity will contract with the intermediary (such as a staffing agency) to receive the benefit of the employee’s work.

The first step in analyzing a possible vertical joint employment relationship is to determine whether an intermediary employer is actually an employee of the potential joint employer.  If it is, then all of the intermediary’s employees are also employees of the potential joint employer.  Thus, if a company providing plumbing services on a construction site is found to be an employee of the general contractor, then all of the plumber’s employees will also be employees of the general contractor.

Outside of that scenario, the WHD cites seven factors that should be reviewed when commonly analyzing a vertical joint employment relationship:

  1. Directing, controlling, or supervising the work performed – If work is controlled or supervised by a potential joint employer beyond contract performance oversight, then this suggests an employment relationship;
  2. Controlling employment conditions – The ability to hire and fire and determine compensation suggest an employment relationship;
  3. Permanency and duration of the relationship – A long and permanent relationship suggests an employment relationship;
  4. Repetitive nature of the work – Work that is unskilled and requires little training suggests an employment relationship;
  5. Integral to the business – Work that is integral to the business suggests an employment relationship;
  6. Work performed on premises – Work performed on premises owned or controlled by the potential joint employer indicates an employment relationship; and
  7. Performing administrative functions commonly performed by employers – Handling payroll, providing workers’ compensation insurance, providing tools and equipment, and providing transportation suggests an employment relationship.

The AI provides this example of a vertical joint employment relationship: A worker is employed by a drywall company, which is a subcontractor for a general contractor on a construction project.  The drywall company hires and pays the worker.  The general contractor trains the worker, provides equipment, provides workers’ compensation insurance, provides assignments, controls the worker’s schedule, and has the power to remove the worker from the jobsite.  In this scenario, there is likely a joint employment relationship, and the worker would be employed by both the drywall company and the general contractor.

If you haven’t already done so recently, this AI reinforces that you need to assess whether you may have a joint employment relationship with another entity.  If so, you should assess whether you are properly compensating all necessary employees overtime when those employees work over 40 hours in the aggregate for both joint employers.  You also should examine whether you may face any exposure if a joint employer encountered financial problems. For example, if a contractor and subcontractor are found to be joint employers and the subcontractor files for bankruptcy, the contractor may be on the hook for all of the employee’s wages that it believed was the responsibility of the subcontractor.  These are only some of the legal landmines in play in these relationships, so if you have anything resembling such a relationship, or are concerned after reading this that you may have one, consultation with counsel is advised.

 

 

Joseph Leonoro concentrates his practice in matters involving labor and employment law.
 
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