1. Who can be a joint employer under the Fair Labor Standards Act (FLSA)?
  2. What is the Joint Employer final rule?
  3. When does the final rule take effect?
  4. Why did the Department revise the Joint Employer Rule?
  5. In what scenarios is it possible for an employee to have one or more joint employers?
  6. What is the standard for determining joint employer status when an employee has an employer who suffers, permits, or otherwise employs the employee to work, but another individual or entity simultaneously benefits from that work?
  7. When is a potential joint employer considered to be acting “indirectly” in the interest of the employer in relation to the employee?
  8. Does an individual or entity have to meet all of the factors in the balancing test to be an FLSA joint employer, or is it enough to meet only one of the four factors?
  9. Can FLSA joint employer status be established solely based on an individual or entity’s ability to exercise control relating to one or more of the four factors?
  10. How are “employment records” defined for the purposes of the four-factor balancing test?
  11. Is an employee’s economic dependence on a potential joint employer relevant to a determination of FLSA joint employer status?
  12. Is a potential joint employer’s business model relevant to a determination of FLSA joint employer status?
  13. Are there any other factors that are not relevant in determining FLSA joint employer status?
  14. What is the standard for determining FLSA joint employer status when one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek?

 

 

1.  Who can be a joint employer under the Fair Labor Standards Act (FLSA)?

A joint employer can be an individual, partnership, association, corporation, business trust, legal representative, public agency, or any organized group of persons, excluding any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such a labor organization.

 

2.  What is the Joint Employer final rule?

The U.S. Department of Labor (Department) updated and revised its regulations providing guidance regarding joint employer status under the FLSA. Under the FLSA, an employee may have—in addition to his or her employer—one or more joint employers, additional individuals or entities who are jointly and severally liable with the employer for the employee’s required minimum wage and overtime pay. The final rule clarifies when individuals or entities are joint employers under the FLSA.

The FLSA generally requires covered employers to pay their employees at least the federal minimum wage for all hours worked and overtime for hours worked over 40 in a workweek.

This final rule does not address “joint employer” status under other federal employment laws, such as the National Labor Relations Act, the Employee Retirement Income Security Act of 1974, the Migrant and Seasonal Agricultural Worker Protection Act, or Title VII of the Civil Rights Act.

 

3.  When does the final rule take effect?

The final rule states that it will be effective March 16, 2020.

 

4.  Why did the Department revise the Joint Employer Rule?

The Department has not meaningfully revised this regulation in over 60 years. During that time, circuit courts have developed a variety of tests to determine FLSA joint employer status, particularly in those situations where an employee performs work for an employer and that work simultaneously benefits another individual or entity (for example, where the employer is a subcontractor, and the other entity is a general contractor). This has resulted in uncertainty for employers and workers and increased compliance and litigation costs. By providing a clear four-factor balancing test for determining joint employer status in these situations, and by identifying factors that do not make joint employer status more or less likely under the FLSA, the final rule will reduce uncertainty over joint employer status, promote greater uniformity among court decisions, reduce litigation, and encourage innovation in the economy.

 

5.  In what scenarios is it possible for an employee to have one or more joint employers?

The final rule continues to recognize two potential scenarios where an employee may have one or more joint employers.

In the first scenario, the employee has an employer who suffers, permits, or otherwise employs the employee to work, but another individual or entity simultaneously benefits from that work.

In the second scenario, one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek, but the jobs and the hours worked for each employer are separate.

The final rule describes the standards to be used in determining joint employer status for each scenario.

 

6.  What is the standard for determining joint employer status when an employee has an employer who suffers, permits, or otherwise employs the employee to work, but another individual or entity simultaneously benefits from that work?

In situations where an employee works one set of hours for an employer that simultaneously benefits another individual or entity, the final rule has replaced the previously applicable “not completely disassociated” standard for determining joint employer status, and provides that the other entity is a joint employer only if that entity is acting directly or indirectly in the interest of the employer in relation to the employee. The final rule provides a four-factor balancing test derived from Bonnette v. California Health & Welfare Agency to make that determination. The four factors include whether the other individual or entity:

  • hires or fires the employee;
  • supervises and controls the employee’s work schedules or conditions of employment to a substantial degree;
  • determines the employee’s rate and method of payment; and
  • maintains the employee’s employment records. 

Additional factors may be relevant for determining joint employer status in this scenario, but only if they indicate whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work.

 

7.  When is a potential joint employer considered to be acting “indirectly” in the interest of the employer in relation to the employee?

The final rule also provides that a potential joint employer indirectly exercises control over an employee through mandatory directions to another employer that directly controls the employee. However, indirect control does not include the direct employer’s voluntary decision to accommodate the potential joint employer’s request, recommendation, or suggestion. Similarly, acts that incidentally impact the employee do not indicate joint employer status. For example, a restaurant could request lower fees from its cleaning contractor, which, if agreed to, could impact the wages of the cleaning contractor’s employees. However, this request would not constitute an exercise of indirect control over the employee’s rate of payment.

 

8.  Does an individual or entity have to meet all of the factors in the balancing test to be an FLSA joint employer, or is it enough to meet only one of the four factors?

Whether an individual or entity is an FLSA joint employer will depend on all the facts in a particular case, and the appropriate weight to give each factor will vary depending on the circumstances. However, the final rule specifies that the potential joint employer’s maintenance of the employee’s employment records alone will not lead to a finding of joint employer status.

 

9.  Can FLSA joint employer status be established solely based on an individual or entity’s ability to exercise control relating to one or more of the four factors?

No. The final rule provides that although an individual or entity’s power, ability, or reserved contractual right to exercise control relating to one or more of the factors may be relevant in determining whether they are an FLSA joint employer, such power, ability, or reserved contractual rights are not in themselves sufficient to establish FLSA joint employer status without some actual exercise of control.

 

10.  How are “employment records” defined for the purposes of the four-factor balancing test?

The final rule defines the “employment records” referred to in the fourth factor to mean only those records, such as payroll records, that reflect, relate to, or otherwise record information pertaining to the hiring or firing, supervision and control of the work schedules or conditions of employment, or determining the rate and method of payment of the employee.

 

11.  Is an employee’s economic dependence on a potential joint employer relevant to a determination of FLSA joint employer status?

No; the final rule states that an employee’s economic dependence on the potential joint employer is not relevant for determining whether that individual or entity is an FLSA joint employer. The final rule provides examples of factors that are not relevant because they assess the employee’s economic dependence, including whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight, whether the employee has the opportunity for profit or loss based on managerial skill, whether the employee invests in equipment or materials required for work or the employment of helpers, and the number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services. While courts have used these factors for determining whether a worker is an employee or independent contractor, they are not relevant for determining whether additional entities are jointly liable under the FLSA to a worker whose classification as an employee has already been established.

 

12.  Is a potential joint employer’s business model relevant to a determination of FLSA joint employer status?

The final rule clarifies that operating as a franchisor entering into a brand-and-supply agreement, or using a similar business model, does not make FLSA joint employer status more likely.

 

13.  Are there any other factors that are not relevant in determining FLSA joint employer status?

The final rule identifies certain contractual arrangements and business practices that do not make FLSA joint employer status either more or less likely, as described below.

A potential joint employer’s contractual agreements with an employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public do not make FLSA joint employer status more or less likely. Examples of such contractual agreements include mandating that employers comply with their obligations under the FLSA or other similar laws, instituting sexual harassment policies, requiring background checks, establishing workplace safety practices and protocols, or requiring that workers receive training regarding matters such as health, safety, or legal compliance. 

Similarly, contractual agreements with an employer requiring quality control standards to ensure consistent quality of the work product, brand, or business reputation do not make FLSA joint employer status more or less likely. Examples of such contractual agreements include requiring the employer to meet quantity and quality standards and deadlines requiring morality clauses, or requiring the use of standardized products, services, or advertising to maintain brand standards.

Finally, a potential joint employer’s practice of providing the employer a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice does not make joint employer status more or less likely.

 

14.  What is the standard for determining FLSA joint employer status when one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek?

The final rule did not make any substantive changes to the standard for determining joint employer liability in this scenario. If the employers are acting independently of each other and are disassociated with respect to the employment of the employee, each employer may disregard all work performed by the employee for the other employer in determining its liability under the FLSA. However, if the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining if they are in compliance. The employers will generally be sufficiently associated if there is an arrangement between them to share the employee’s services, the employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.