DOL Finalizes FLSA Joint Employment Rule
Author: Michael Cardman, XpertHR Legal Editor
January 13, 2020
The US Department of Labor (DOL) has finalized a four-factor test for determining whether two or more employers are joint employers with respect to an employee under the Fair Labor Standards Act (FLSA) - and therefore jointly liable for any violations of the law's minimum wage and overtime requirements.
Under a final rule taking effect March 16, an employer will be considered a joint employer if it actually exercises the power - whether directly or indirectly - to do one or more of the following:
- Hire or fire an employee;
- Supervise and control the employee's work schedule or conditions of employment to a substantial degree;
- Determine the employee's rate and method of payment; or
- Maintain the employee's employment records.
In contrast to independent contractor classification under the FLSA, the rule states that, "Whether the employer is economically dependent on the potential joint employer is not relevant for determining the potential joint employer's liability under the [FLSA]."
This new joint employment standard will "break down barriers that keep companies from constructively overseeing, guiding and helping their business partners," said DOL Wage and Hour Division Administrator Cheryl Stanton. "For small business owners, and the employees working in those businesses, the relationship and the guidance coming from franchisors and other contracting companies can greatly improve the workplace and help them create jobs."
The FLSA requires employers to pay employees a minimum wage for all hours worked and overtime if they work more than 40 hours in a workweek.
The law defines employer broadly to include "any person acting directly or indirectly in the interest of an employer." In turn, person is defined as "an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons."
Based on these definitions, federal courts and the DOL have interpreted the FLSA to hold two or more employers as jointly and severally liable for wages due an employee.
In 1958, the DOL issued regulation 29 CFR 791.2 interpreting FLSA joint employment, which stated that multiple persons can be joint employers of an employee if they are "not completely disassociated."
In 2016, the Obama administration DOL issued an Administrator's Interpretation that took a broad view of joint employment. It looked at the "economic realities" of the employment relationship and allowed for a finding of joint employment if an employer had the ability to exercise control over an employee even if it had never used it, as opposed to actually exercising control over an employee.
In 2017, the Trump administration DOL rescinded the 2016 Administrator's Interpretation. Two and a half years later, the DOL is now revising 29 CFR 791.2.
Unlike the 1958 regulation, which is technically an "interpretive bulletin" regulation that is not entitled to deference from the courts beyond its "power to persuade," the 2020 regulation went through the notice-and-comment rulemaking process and therefore may be less vulnerable to legal challenges.
Nevertheless, employee advocates may challenge it on the grounds that, as Rebecca Dixon, executive director of the National Employment Law Project, described it, "the DOL ignored the clear language of the [FLSA], decades of court rulings, including by the US Supreme Court, and comments from numerous states and worker advocates."
The business community welcomed the DOL's changes and can be expected to vigorously defend them. "This resolution provides much-needed clarity for the 733,000 franchise establishments across America, and returns to the traditional standard of business that has fundamentally supported and encouraged franchise entrepreneurship for decades," said Robert Cresanti, president and CEO of the International Franchise Association.
In more welcome news for employers, both the National Labor Relations Board and the Equal Employment Opportunity Commission (EEOC) also are planning to loosen joint employment standards under other federal labor and employment laws.