The U.S. Department of Labor (“DOL”), Wage and Hour Division (“WHD”) recently issued an Administrator’s Interpretation (“Interpretation”) on joint employer liability under the Fair Labor Standards, Act, 29 U.S.C. § 1801 et seq. and the Migrant Seasonal Agricultural Worker Protection Act, 29 U.S.C. § 201 et seq., that provides additional guidance to employers but also may demonstrate the DOL’s increased efforts to focus on joint employer liability for wage and hour compliance. According to the WHD, the workplace increasingly involves use of outsourcing, shared employees, integrated employers, and other forms of co-dependent business models. The WHD seeks to ensure compliance with wage and hour laws for entities that rely upon such alternative workforces. While the Interpretation is not binding upon the courts and constitutes guidance for employers, it lists factors extrapolated from court decisions, other DOL guidance, and related sources that should be considered where an employer utilizes alternative labor sources or has sister or related entities that share common operations or are interdependent.
Horizontal Joint Employment
Horizontal joint employment, which consists of two or more entities that are sufficiently associated to control the employment relationship of the target employees, might include, for example, separate restaurants that share economic ties and have the same managers, or home health care providers that share staff and have common management. According to the Interpretation, horizontal joint employer analysis focuses on the relationship between two or more employers. Specific factors outlined in the Interpretation include:
- The owners of the potential joint employer;
- The existence of overlapping officers, directors, executives or managers;
- Shared control by the potential employers over operations (including hiring, firing, payroll, advertising, and overhead costs);
- Intermingling of operations (such as a single person or department for administrative operations, scheduling, and payment of wages);
- Supervision by the potential joint employer over the work of the other;
- Shared management between the potential joint employer and the other;
- Shared employees between the potential joint employer and the other;
- Shared clients between the potential joint employer and the other; and
- The existence of agreements between the potential joint employer and the other.
This list is not all-inclusive, and not all factors need be present to establish a joint employment relationship. Despite the existence of formal distinct corporate entities, the greater the degree of association and shared control over the employees, the greater the likelihood for finding joint employer liability.
Vertical Joint Employment
Vertical joint employment turns on the economic realities of the relationship and involves another entity that the potential joint employer hires to perform services, such as a subcontractor hired by a general contractor, or a staffing agency which provides temporary workers to its customers. In either scenario, a joint employment relationship could exist concerning the employees performing the outsourced work. Specific factors outlined in the Interpretation include:
- Directing, controlling or supervising the work performed;
- Controlling employment conditions (such as hiring, firing, and determining compensation rates and payment methods);
- Permanency and duration of the relationship;
- The nature of the work (repetitive and rote work is more typical of joint employment);
- The work at issue constituting an integral part of the potential joint employer’s business;
- Performance of work by the employees on the potential joint employer’s premises;
Performance of administrative functions commonly performed by a primary employer (such as handling payroll, workers compensation insurance, providing facilities and safety equipment, transportation, tools and materials).
Like the factors for horizontal joint employment, the economic realities factors are not all-inclusive, and the ultimate determination is fact-intensive.
The Interpretation also notes that courts sometimes utilize different factors or slight variations of the factors above. As an example, the Second Circuit adopted a test that applies six factors. In contrast, the Third Circuit uses a test that primarily analyzes the control (such as hiring, firing, supervision, and control over working conditions) by the potential joint employer.
As a result of a joint employer finding, the joint employer targeted by the analysis could be held jointly and severally liable for all wage hour liability and compliance of the direct employer. Given the recent Interpretation, it appears more likely that the DOL will focus on joint employer relationships and pursue joint employer claims against employers.
Gibbons Employment & Labor Law Department attorneys regularly advise employers to analyze joint employer relationships and handle related litigation.