Getting the jump on the other federal agencies, the Department of Labor (DOL) issued its final rule on the joint employer standard under the Fair Labor Standards Act (FLSA).
In addition to the DOL, the National Labor Relations Board (NLRB) and the Equal Employment Opportunity Commission (EEOC) have been working on their own rules for joint employer, set for release in 2020.
The DOL made the first move, noting its concern that existing regulations—which had not been meaningfully revised in more than 60 years—did not provide adequate guidance for employers.
Following the publication of a Notice of Proposed Rulemaking (NPRM) and review of comments, the DOL established a four-part balancing test derived from the U.S. Court of Appeals, Ninth Circuit’s 1983 decision in Bonnette v. California Health & Welfare Agency.
In the joint employer scenario where another person is benefiting from the employee’s work, the four factors to be assessed are whether the other person:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
No single factor is dispositive in determining joint employer status, the DOL said, and the appropriate weight to give each factor will vary depending on the circumstances. Satisfaction of the maintenance of employment records factor alone does not demonstrate joint employer status.
Not only does the test comport with the language of the FLSA, but multiple circuit courts apply similar balancing tests, the agency noted.
The final rule also provided additional guidance on how to apply the test.
For example, to be a joint employer under the FLSA, the other person must actually exercise—directly or indirectly—one or more of the four control factors, the DOL explained. The other person’s ability, power or reserved right to act in relation to the employee may be relevant, but does not alone demonstrate joint employer status without some actual exercise of control, the agency emphasized.
This was a change from the NPRM, which said the reserved right to act was irrelevant. Based on comments, the DOL tweaked the final rule to recognize that the reserved right to act can play some role in determining joint employer status.
Other changes from the NPRM include additional guidance on the meaning of “employment records” for purposes of the fourth factor and on what constitutes indirect acts of control for purposes of applying the factors generally.
While the four-factor test should determine joint employer status in most cases, the DOL noted that additional factors may be relevant, and the final rule provides that additional factors may be considered, “but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee’s work.”
Significantly, an employee’s economic dependence on a potential joint employer is not a relevant factor, the agency said, so factors that assess the employee’s economic dependence (such as whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment or foresight, or whether the employee invests in equipment or materials required for work) should not be considered as part of the analysis.
The NPRM also identified certain business models (such as a franchise model), business practices (such as allowing the operation of a store on one’s premises) and contractual agreements (such as requiring a party in a contract to institute sexual harassment policies) that do not make joint employer status more or less likely under the FLSA. After receiving many comments on the issue, the DOL added even more examples to the final rule.
“This will allow parties to make business decisions and enter into business relationships with more certainty and clarity regarding what actions will result in joint liability under the Act,” the DOL explained.
The final rule will take effect on March 16, 2020.
To read the new rule, click here.
Why it matters: Employers should familiarize themselves with the DOL’s final rule on joint employers and understand how the application of the four-factor test might impact their business, while keeping an eye out for the new NLRB and EEOC rules still to come.