Originally published by Jacob Crumrine.
The Department of Labor’s Wage and Hour Division recently released Administrator’s Interpretation No. 2016-1, examining joint employment relationships under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act. This comes shortly after the National Labor Relations Board issued its well-publicized decision in Browning-Ferris Industries that dramatically broadened the “joint employer” concept under the National Labor Relations Act. So where does the law now stand under the FLSA?
What’s New in the Administrator’s Interpretation?
While the recent Interpretation doesn’t create new joint employment law, it offers a summary and analysis of existing law and an assertion of WHD policy which many regard as employee-friendly. The WHD was not shy about its desire to maximize “statutory coverage, financial recovery, and future compliance,” especially where “one employer may also be larger and more established, with a greater ability to implement policy or systemic changes to ensure compliance.” In short, the WHD wants to motivate employers to police each other, and will likely target large companies with deep pockets and small companies with less influence, alike.
Where Is My Company Vulnerable?
Companies should be on the lookout for what the WHD calls “horizontal” and “vertical” joint employment relationships. Horizontal relationships can arise where two separate but related entities each employ the same employee. This relationship can occur where the entities share common ownership, agree to pool employees, or even where they share clients or customers. For example, if managers at different locations work together to schedule an employee, a “horizontal” relationship might exist.
Vertical relationships can arise where one entity contracts with another to provide services or staff, such as temporary workers. Courts look to whether the “economic realities” indicate that the worker is dependent on both the service provider and the service recipient. This economic realities test is functionally similar to that used in the independent contractor misclassification context, and considers factors such as control over the work performed, the duration of the relationship, and the degree to which the work is integral to the service recipient’s business.
Is the New Interpretation Different from Browning-Ferris or Other Standards?
Although the question of joint employment may arise under a number of laws, including the FLSA, NLRA, OSHA, and Title VII, there is no common test or definition. The WHD’s new Interpretation discusses two different standards for joint employment under the FLSA alone, and it’s not yet clear how expansive these standards will prove to be in practice. Browning-Ferris marked a shift towards finding joint employment under the NLRA in circumstances previously regarded as too remote, where one employer merely has the right to co-determine terms of employment, even if that employer never actually exercises such control. Under OSHA, liability may arise where an employer controls or creates a hazard, even when the employees are not directly employed by the employer. These multiple, and apparently moving, targets are understandably frustrating for employers attempting to follow the various laws in good faith and accurately assess their vulnerabilities.
How Can My Company Protect Itself?
Some joint employment relationships are unavoidable, and some may even be beneficial. However, it is important that your company is aware of its joint employer status and any associated risk under the FLSA. First, be selective about the companies you work with. A finding of joint employment means all joint employers may be subject to joint and several liability, so companies with a history of FLSA violations, or those lacking the financial stability to survive a lawsuit, could expose their business partners to hefty, lopsided judgments. Second, when sharing employees or contracting for services, clearly spell out the worker’s availability and wage, as well as which entity is responsible for overtime wages and other pay, compensation, and benefits. While it can be difficult to avoid joint employment relationships, these steps will help reduce your risk of liability.
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