For the first time in sixty years, the U.S Department of Labor is substantively revising the regulation that articulates when two people or businesses are “joint employers” of an employee under the Fair Labor Standards Act (FLSA). The final version of Joint Employer Status under the FLSA will be published this Thursday, January 16, and is effective on March 16, 2020. See 29 CFR Part 791. The unpublished version is available here. The revisions are meant to “reduce uncertainty over joint employer status, promote greater uniformity among court decisions, reduce litigation, and encourage innovation in the economy.” Franchise chains, temp agencies, and businesses that outsource their workforces are among those that will benefit from the revised rule.
The updated regulation provides relevant factors for identifying where joint employers exist in two different scenarios: first, where an employee’s work benefits a secondary person or entity, apart from his employer, and second, where two employers employ an individual for certain time periods within the same workweek.
In the first scenario, the revised regulation establishes a four-factor test, which will weigh whether the secondary employer (1) has hiring and firing power; (2) substantially supervises and controls the employee’s schedule and work conditions; (3) determines the employee’s compensation; and (4) keeps the employee’s records. Additional factors will be relevant to determine if and how the secondary employer controls the employee’s work terms and conditions. The regulation identifies certain factors – including an employee’s economic dependence, operation as franchisor, or similar business models, and certain contractual agreements – that do not make a finding of joint employer status either more or less likely.
The new regulation did not meaningfully revise the test for joint employer status in the second scenario, where an individual works for two different employers during the same workweek. If employers are associated with each other concerning the subject employee, they are joint employers, and jointly liable for wage and hour violations under the FLSA. The DOL stated that “employers will generally be sufficiently associated if there is an arrangement between them to share the employee’s services, the employer is acting directly or indirectly in the interest of the other employer in relation to the employee, or they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.”
Labor Secretary Eugene Scalia and White House Chief of Staff Mick Mulvaney penned an op-ed in Sunday’s Wall Street Journal, arguing the new rule is a “degregulatory win” that reverses the Obama administration’s “aggressive” definition of joint employer status, which was more strongly in favor of finding joint employment. Accordingly, the current administration can be expected to enforce the rule in a way that is friendlier towards business, and raise the bar for employees to establish joint employer liability. The new rule will govern Department of Labor enforcement standards, and could influence private arbitration that FLSA disputes are often subject to. However, the rule is not binding on courts, and could be rescinded if a Democratic (or Independent) claims the White House in November.
As always, Murtha attorneys are available to discuss how the DOL’s new rule may impact your business.