Joint Employment Relationships Focus of New DOL Interpretation

Joint Employment Relationships Focus of New DOL Interpretation

Late last month the U.S. Department of Labor Wage and Hour Division (WHD) issued an Administrator’s Interpretation aimed a providing guidance to companies on the subject of joint employer relationships. You can read the 15 page Interpretation here. The Interpretation discusses horizontal joint employer arrangements and vertical joint employer arrangements. Each has its own quirks and tests that should be considered, although vertical joint employment is usually the norm, there are many cases where horizontal employment is starting to become more prominent.

Before looking at the factors to each type of relationship, it is important to understand just how expansive is the WHD’s definition of employment.The definition of employment is to “suffer or permit work.” This definition is broader than the concept of a company’s control over a worker, and broadens the scope of employment arrangements governed by the Fair Labor Standards Act. As the Supreme Court stated in Walling v. Portland Terminal Co., 330 U.S. 148, 150-51 (1947)  the FLSA’s definitions are “comprehensive enough to require its application” to many working relationships which, under the common law control standard, may not be employer-employee relationships.” Some of those relationships involve multiple employers of a worker under circumstances that are different than an individual having a second or third job. For example, a teacher for the public schools may also be an instructor for a standardized test prep company. The two employers are distinct. There is no prohibition on a person having more than two jobs.

Joint employers are each individually and jointly liable for all of the protections required for wage earners, including guarantee of minimum wage, overtime pay, worker’s compensation insurance, tax withholding and unemployment insurance. In the event of a dispute, lawsuit, or administrative investigation, joint employers of a worker each bear the risk of adverse findings.

Horizontal Joint Employers

Companies most likely to be found horizontal joint employers are those within close proximity whose administrative functions are often combined and whose ownership is either identical or closely associated. This test is about the economic realities of the employers more than it is about the worker. But an worker who works 25 hours a week for two horizontal employers would be eligible to receive 40 hours of regular pay and 10 hours of overtime.

The factors that WHD suggests be analyzed in a horizontal employment situation are:

  • who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
  • do the potential joint employers have any overlapping officers, directors, executives, or managers;
  • do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
  • are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
  • does one potential joint employer supervise the work of the other;
  • do the potential joint employers share supervisory authority for the employee;
  • do the potential joint employers treat the employees as a pool of employees available to both of them;
  • do the potential joint employers share clients or customers; and • are there any agreements between the potential joint employers.

While these factors are relevant, this is not an exhaustive list. Similarly not all of these factors need be present to find a horizontal joint employer. The focus of the inquiry is on how closely associated the multiple entities are and how much they jointly control the work of the employee.

Vertical Joint Employers

Vertical joint employment relationships often rely on a company engaging another company or person (the intermediary company) to provide labor to the first company. Staffing agencies are the most common arrangement, but there may be others. Vertical joint employers analysis focuses on the economic dependence of the worker on the main employer (not the intermediary company). In many vertical joint employer cases, the employee often admits that the employee is employed by the intermediary, but alleges the worker is economically dependent on the potential joint employer   This economic dependence analysis looks a lot like the analysis conducted for independent contractors, but omits the consideration that the worker might be in business for himself. In a joint employer economic dependence test, it assumed or admitted that the worker is an employee not a an independent contractor, so the analysis focuses on whether or not there is a joint employer relationship.

Like the horizontal joint employer analysis, the following factors, while relevant are not to be considered exclusive or should the be required to be present in all cases.

  • Does the potential joint employer direct, control or supervise the work of the employee?
  • Does the potential joint employer control the employment conditions?
  • How long or how permanent is the relationship between the worker and the potential joint employer?
  • Is the work being performed repetitive, rote, or unskilled in nature?
  • Is the work being formed integral to the business of the potential joint employer?
  • Is the work being performed on the potential joint employer’s premises?

Again the focus is on how economically dependent the worker is on the potential joint employer. Other factors that may impact the analysis is whether the potential joint employer has input into the hiring/firing decisions, whether the potential joint employer provides worker’s compensation insurance, and performs administrative tasks such as payroll and training.

The Key Takeaway

Joint employment relationships carry a risk that could be expensive. Simply stating in a contract or other agreement that employees are not shared is not enough. Employers who may be impacted by either of these analyses should take care to separate and document the relationships and where possible take steps to maintain the separation between entities on the horizontal joint employer test, or limit the economic dependence in a vertical joint employer test.

While the two types of joint employment may have advantages for the companies, all parties should carefully look at the risks and if it is necessary to have the relationship, to strictly comply with FLSA regulations.