Locke Lord QuickStudy: DOL Offers Primer on Joint Employment, Caution to Employers

Locke Lord LLP
January 26, 2016

Increasingly, federal watchdog agencies are sending the message that an employer’s liability under federal employment laws may extend beyond its own employment practices. The latest word is a January 20, 2016 Administrator’s Interpretation from the Department of Labor concerning joint employment under the Fair Labor Standards Act. The DOL’s memorandum offers both a primer on joint employment relationships and a warning that the DOL is increasingly willing to use joint employer liability as a tool for achieving compliance with federal wage and hour laws.

What is Joint Employment Under the FLSA?
The Fair Labor Standards Act requires employers to ensure that their employees receive at least the federal minimum wage and are paid overtime for work beyond 40 hours per week. The FLSA takes a broad view of employment, defining “to employ” as “to suffer or permit to work.” Under this definition, two or more employers may jointly employ a single worker. Horizontal joint employment exists when a worker has employment relationships with two or more employers who are associated with or related to one another. Vertical joint employment refers to situations in which a worker has an employment relationship with one employer but is economically dependent upon another with respect to his or her work.   

Identifying a Joint Employment Relationship
Horizontal and vertical joint employment relationships are reviewed differently. When analyzing horizontal relationships, the focus is on ties between the employers. The vertical joint employment analysis centers on each employer’s relationship with the employee.

Horizontal joint employment relationships may exist where employers share or interchange an employee’s services; where one employer acts in the interest of another employer with respect to an employee; or where associated employers share control of a common employee. The DOL considers the following factors relevant to the horizontal analysis:

  • The ownership structure of the employers, such as whether one owns the other or they share a common owner;
  • Whether the employers share executives or management personnel;
  • Whether the employers share administrative or other operational units;
  • Whether the employers share control over decisions regarding hiring, firing, payroll, advertising, or expenses;
  • Whether the employers treat their employees as a common pool for each to draw from;
  • Whether the employers have common customers or clients; and
  • Whether any agreements exist between the employers. 

In vertical employment relationships, a potential joint employer has often contracted with an intermediary employer to furnish it with workers or administrative services. While some courts have focused on the degree of control that the potential joint employer exercises over the intermediary’s employees, the DOL asserts that the ultimate inquiry should be whether the employee is economically dependent upon the potential joint employer. Factors relevant to this analysis include:

  • The potential joint employer’s control or supervision over the employee, beyond mere contract performance oversight;
  • The potential joint employer’s control over hiring, termination, or disciplinary decisions, or decisions regarding pay or other conditions of employment;
  • The permanency or duration of the employee’s relationship to the potential joint employer, with a longer relationship indicating economic dependence;
  • The level of skill required for the job, with less skill indicating economic dependence;
  • Whether the employee’s work is integral to the potential joint employer’s business;
  • Whether the employee works on the premises of the potential joint employer; and
  • Whether the potential joint employer performs administrative functions for the employee, such as paying wages, paying worker’s compensation premiums, or providing facilities, equipment, or supplies required for the work. 

What It Means to Be a Joint Employer
Where a joint employment relationship is established, the employee’s work for each employer is considered to be one employment, and each joint employer becomes independently liable for compliance with the FLSA. Liability is not allocated proportionally, making each employer legally responsible for all wages due. This circumstance often comes into play when one joint employer has misclassified a worker as exempt from overtime or as an independent contractor and failed to pay that worker minimum wage or overtime. The other joint employer may then become liable for back wages, double damages, and potentially even punitive damages.

The DOL Cautions Employers
The DOL advocates for an expansive definition of joint employment and analyzes joint employment issues in hundreds of investigations each year. It promises to “continue to consider the possibility of joint employment to ensure that all responsible employers are aware of their obligations and to ensure compliance with the FLSA.” Employers who share employees with an associated entity or who contract for labor or operations through an intermediary should remain alert to the factors that the DOL considers when assessing joint employment.