DOL Proposes New Test for FLSA Joint Employment

UPDATE - April 9, 2019: The US Department of Labor's Notice of Proposed Rulemaking (NPRM) has been published in the Federal Register. Employers have until June 10, 2019, to comment on the proposed regulations using the methods described below.

Author: Michael Cardman, XpertHR Legal Editor

April 1, 2019

A four-factor test would be used to determine 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 new rules proposed by the US Department of Labor (DOL).

"This proposal will reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections," Labor Secretary Alexander Acosta said.

The proposed rules, would establish a test that would consider whether a potential joint employer actually exercises the power to:

  • Hire or fire an employee;
  • Supervise and control the employee's work schedules or conditions of employment;
  • Determine the employee's rate and method of payment; and
  • Maintain the employee's employment records.

The DOL's proposed rules for determining joint employment under the FLSA are similar to the National Labor Relations Board's proposed rules for determining joint employment under the National Labor Relations Act (NLRA).

Background

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 this, 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 states that multiple persons can be joint employers of an employee if they are "not completely disassociated."

However, the DOL said this regulation does not adequately explain what it means to be "not completely disassociated" in a scenario where an employer employs an employee to work a set of hours in a workweek, and that work simultaneously benefits another person. "In that scenario, the employer and the other person are almost never 'completely disassociated,' and the real question is not whether they are associated but whether the other person's actions in relation to the employee merit joint and several liability under the Act," the DOL said.

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. Now, the DOL is proposing additional guidance for determining joint employment. 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 2019 regulation will go through the notice-and-comment rulemaking process and therefore is expected by some to be less vulnerable to legal challenges.

Next Steps

This NPRM has been submitted to the Office of the Federal Register (OFR) for publication, and is currently pending placement on public inspection at the OFR and publication in the Federal Register. Employers will have 60 days from the time the NPRM is officially published in the Federal Register to comment. Comments may be submitted online under Regulatory Information Number (RIN) 1235-AA26 or by mailing written submissions to:

Division of Regulations, Legislation and Interpretation

Wage and Hour Division, US Department of Labor, Room S-3502

200 Constitution Avenue, N.W.

Washington, DC 20210

Written submissions must include the name of the agency and the RIN 1235-AA26.

After the comment period ends, the DOL will respond to comments and possibly make revisions before publishing a final rule. This final rule will include a formal effective date.