DOL’s Proposed Joint-Employer Rule Gives Real-World Examples

Employers now have until June 25 to comment on the proposal

DOL’s Proposed Joint-Employer Rule Gives Real-World Examples

The U.S. Department of Labor's (DOL's) proposed joint-employer rule includes examples designed to clarify what does—and doesn't—constitute a joint-employer relationship.

The department recently announced that it is extending the comment period, so employers and other interested parties now have until June 25 (rather than June 10) to comment on the proposed rule.

Under the proposal, businesses won't likely be deemed joint employers if they stay out of the day-to-day employment decisions of their contractors and franchisees.

Narrow Rule Proposed

In some circumstances, businesses can be held jointly responsible for certain wage violations by their contractors or franchisees—such as failing to pay minimum wage or overtime. But the DOL wants to narrow the definition of "joint employer" under the Fair Labor Standards Act (FLSA) and has proposed a four-factor test that considers whether a potential joint employer exercises the power to:

  • Hire or fire an employee.
  • Supervise and control an employee's work schedules or employment conditions.
  • Determine an employee's rate and method of pay.
  • Maintain a worker's employment records.

Reserving the right to control the employee's working conditions would not be enough to show that a business is a joint employer; the company would have to actually exert that control.

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In the proposal, the DOL provided a number of real-life scenarios to illustrate when the department would find a joint-employer relationship under its four-factor test. "These examples make it clear that the business models that customarily are associated with franchise businesses, staffing agencies and other third-party contracting arrangements will not constitute a joint-employer arrangement unless one or more of the foregoing criteria exists," said Jonathan Turner, an attorney with Mitchell Silberberg & Knupp in Los Angeles.

However, expect legal challenges to the rules once the DOL finalizes them and they take effect, he noted, because the changes conflict with the direction that former President Barack Obama's administration took. In 2017, President Donald Trump's administration's withdrew an interpretation that the prior administration issued that broadly defined "joint employer." 

Specific Examples

Large companies and franchisors typically want to exert some control over the contractors and franchisees they deal with, explained Jon Klinghoffer, an attorney with Goldberg Kohn in Chicago. This allows the business to set minimum standards for quality, branding, safety and other aspects of the relationship.

In a list of frequently asked questions, the DOL provided nine common scenarios and applied its proposed standard. One example involved a cook who spent 30 hours a week working for one restaurant and 15 hours a week working for another restaurant that was affiliated with the same nationwide franchise. Each restaurant was locally owned and managed by different franchisees that didn't collaborate with each other.

So could they be deemed joint employers of the cook? The DOL said "no." The restaurants would not be joint employers under the proposal because they weren't "associated in any meaningful way with respect to the cook's employment," according to the DOL. "The similarity of the cook's work at each restaurant, and the fact that both restaurants are part of the same nationwide franchise, are not relevant to the joint employer analysis, because those facts have no bearing on the question whether the restaurants are acting directly or indirectly in each other's interest in relation to the cook."

The department presented another scenario in which a packaging company daily asked for workers from a staffing agency. The packaging company determined how many workers it needed each day, set pay rates and hours, supervised the workers' activities, and sent workers home if there wasn't enough to do.

In this scenario, the DOL said the packaging company would be a joint employer of the workers because it exercised "sufficient control over their terms and conditions of employment by setting their rate of pay, supervising their work and controlling their work schedules."

"I think the fact-specific nature of the examples will be very helpful to employers in evaluating their own facts and relationships with other employers," said Charlie Morgan, an attorney with Alston & Bird in Atlanta.  

Additional Clarification

The DOL's proposed rule would also clarify that the following factors don't influence the joint-employer analysis:

  • Having a franchisor business model.
  • Providing a sample employee handbook to a franchisee.
  • Allowing an employer to operate a facility on the company's grounds.
  • Jointly participating with an employer in an apprenticeship program.
  • Offering an association health or retirement plan to an employer or participating in a plan with the employer.
  • Requiring a business partner to establish minimum wages and workplace-safety, sexual-harassment-prevention and other policies.

"This proposal would ensure employers and joint employers clearly understand their responsibilities to pay at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 in a workweek," according to the DOL

The rule would make the FLSA's definition of joint-employer status consistent with the National Labor Relations Board's proposed rule and update the DOL's definition, which was adopted more than 60 years ago.

The proposed test aligns with a more modern view of the workplace, said Marty Heller, an attorney with Fisher Phillips in Atlanta. The test is a modified version of the standard that some federal courts already apply, he noted.

"It is important to remember that this is only a proposed rule, which is subject to the notice and comment process, and any final rule might be very different than what is proposed," Morgan said. He noted that a final rule would be binding on the DOL's Wage and Hour Division in its enforcement measures, but there's no guarantee that courts in private litigation would defer to the DOL's interpretation.

However, if the rule is finalized, he thinks it will "simplify life for human resource professionals" and potentially reduce litigation.

Employers that wish to comment on the proposal may do so by visiting and searching for rulemaking docket RIN 1235-AA26. 



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