For the first time in over 60 years, the United States Department of Labor (DOL) significantly updated the standards it relies upon to determine joint-employer status under the Fair Labor Standards Act (FLSA). The new rule, which was first proposed in April of 2019, becomes effective on March 16, 2020. The DOL’s rationale for the rule is to “promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.”1 According to Secretary of Labor Eugene Scalia, “This final rule furthers President Trump’s successful, government-wide effort to address regulations that hinder the American economy and to promote economic growth.”2
The final rule establishes a four-factor balancing test for determining joint-employer status, examining whether a putative joint-employer: (1) may hire or fire the employee; (2) substantially supervises and controls the employee’s work schedule or conditions of employment; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records. No single factor is dispositive, and the significance of each factor will vary case-by-case; however, the final rule clarifies that mere maintenance of “employment records” alone is not enough to establish joint-employer status. The final rule defines “employment records” as 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 schedule or conditions of employment, or determining the rate and method of payment to the employee.
The final rule also clarifies that a putative joint-employer must actually exercise one or more of the four factors. A right to exercise control, without any actual exercise of such right, will not establish a joint-employer relationship. Moreover, the DOL makes clear that an employee’s “economic dependence” on the potential joint-employer also is not determinative. Though courts in the past have analyzed “economic dependence” or the “economic realities” to determine whether an individual qualifies as an employee, as opposed to an independent contractor under the FLSA, the factors typically utilized to make this determination (such as skill and initiative, opportunity for profit and loss, and relative investments) now are irrelevant to the joint-employer inquiry according to the DOL.
Lastly, the final rule identifies practices that do not make joint-employer status more or less likely. Most notably, those practices include the franchisor/franchisee model, contractual agreements requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees, and contractual agreements with the employer requiring quality control standards.
The DOL’s final rule attempts to provide a consistent and clear standard by which employers can structure their arrangements with other employers. However, it remains to be seen how much deference the courts will accord it, and employers must keep in mind that other state and federal laws may rely upon standards to determine joint-employer status different than those promulgated by the DOL. Both the National Labor Relations Board and the Equal Employment Opportunity Commission are expected to adopt their own standards for determining joint-employer status under the respective laws they are tasked with enforcing. Employers with arrangements that may implicate joint-employer issues should consult counsel to determine how to best structure those relationships to comply with various state and federal laws.
1 Joint Employer Status Under the Fair Labor Standards Act, 85 Fed. Reg. 2820 (Jan. 16, 2020).
2 Department of Labor Press Release dated January 12, 2020 [last visited February 11, 2020].
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