DOL Issues Proposed Joint Employer Rule

The U.S. Department of Labor (DOL) issued a proposed rule on April 22 to provide a single joint employer standard under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act. The proposed rule sets out different standards, however, for “vertical joint employment” and “horizontal joint employment,” and explains what those terms mean. It also provides examples of when the rule applies.

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“The rule we propose today would deliver much-needed regulatory clarity in the face of divergent judicial precedent throughout federal courts of appeals. Clear guidance strengthens worker protections because it ensures that employees receive all wages and benefits they are owed, even if one employer is unable or unwilling to pay,” Wage and Hour Division Administrator Andrew Rogers said.

For each workweek that a person is a joint employer of an employee, that joint employer is “jointly and severally” liable with any other joint employers for compliance with all the applicable provisions of the FLSA for all the hours worked by the employee in the workweek. Joint and several liability means that all joint employers are each fully responsible for the entire amount of minimum wages and overtime pay due to the employee in the workweek, and that if one of them is unable or unwilling to pay, the others are responsible for the full amount owed. In addition, each joint employer may take credit toward minimum wage and overtime pay requirements for all payments made to the employee by any other joint employer.

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When joint employment exists, the FMLA regulations clarify that employees who are jointly employed by two or more employers must be counted by all joint employers in determining employer coverage and employee eligibility under the FMLA. 

However, only an employee’s primary employer is responsible for giving required notices to the employee, providing FMLA leave, and maintaining health benefits, the DOL said. Job restoration is the primary responsibility of the primary employer, while a secondary employer would be responsible for accepting an employee returning from FMLA leave in certain circumstances.

Vertical Joint Employment

Vertical joint employment describes an arrangement in which an employee is jointly employed by two or more employers that simultaneously benefit from the employee’s work, the DOL explained.

“In a typical vertical joint employment situation, the employee works one set of hours and there is no dispute that the employee has at least one employer for the work, and the issue is whether another person that also benefits from the work is the employee’s joint employer,” the department said. 

The scenario is described as vertical because it often centers around whether business partners that are higher or lower in a particular industry structure — such as contractors and subcontractors or staffing agency clients and their staffing agency — are joint employers of the employee, the DOL added.  

“In the department’s experience in FLSA cases, vertical joint employment often involves a higher-tier entity, such as a staffing agency client or general contractor, that disputes whether it has an employment relationship with workers who are unquestionably employees of a lower-tier entity, such as a staffing agency or subcontractor, that has a business relationship with the higher-tier entity,” the DOL said. “As the lower-tier entity is indisputably an employer in such circumstances, the vertical joint employment analysis focuses on the higher-tier entity’s relationship with said employees, that is, constitutes a joint employer of them.”

The proposed rule provides four factors to determine whether another person is the employee’s joint employer in a vertical joint employment scenario. Those four factors are whether the other person or entity: 

• Hires or fires the employee.
• Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree.
• Determines the employee’s rate and method of payment.
• Maintains the employee’s employment records.

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The DOL added that “indirect control may be considered when applying the four factors.”

In the proposed rule, the DOL provided several examples of when a company would or would not be a vertical joint employer.

In one example, a packaging company requests workers daily from a staffing agency. Although the staffing agency determines each worker’s hourly rate of pay, the packaging company closely supervises their work, providing hands-on instruction on a regular and routine basis. The packaging company also uses sophisticated analysis of expected customer demand to continuously adjust the number of workers it requests and the specific hours for each worker, sending workers home depending on workload. Under these facts, the packaging company is a joint employer of the staffing agency’s employees because it exercises sufficient control over their terms and conditions of employment by closely supervising their work and controlling their work schedules, the DOL said.

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Horizontal Joint Employment

Horizontal joint employment involves a situation where an employee works separate hours for two or more joint employers in the same workweek, and the employers are sufficiently associated with each other with respect to the employment of the employee that they are joint employers.

The DOL explained that in a typical horizontal joint employment situation, it is undisputed that each entity employs the worker for some hours worked, and the issue is whether the employers are sufficiently associated with each other with respect to the employment.

There are three proposed situations where the employers will generally be sufficiently associated to be considered joint employers: 

• There is an arrangement between them to share the employee’s services.
• One employer is acting directly or indirectly in the interests of the other employer in relation to the employee.
• 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. 

The proposed rule “explains that business relationships between two employers that have little to do with their employment of specific workers, such as sharing a vendor or being franchisees of the same franchisor, are not generally probative, and could not alone indicate a sufficient association between the employers to establish that they are joint employers.”

As an example of when there would be horizontal joint employment, the proposed rule provided the following hypothetical: An individual works 30 hours per week as a cook at one restaurant, and 15 hours per week as a cook at a different restaurant owned by the same person. Each week, the restaurants coordinate and set the cook’s schedule of hours at each location, and the cook works interchangeably at both restaurants. The restaurants decided together to pay the cook the same hourly rate. Under these facts, the restaurants are joint employers because they share common ownership, coordinate the cook’s schedule of hours, and jointly decide the cook’s terms and conditions of employment, such as the pay rate.

“The horizontal standard is not very controversial since it is pretty consistent with how courts have considered the issue over the years,” Robert Boonin, an attorney with Dykema in Ann Arbor, Mich., said. “On its face, the vertical standard is more significant and is more helpful for franchisors and contractors, but the devil will be in the details as the proposed standard is somewhat flexible in that it still yields to economic realities and the criteria described in the proposal are not exhaustive in that the proposed rule allows courts to consider other factors.”

Public comments on the proposed rule are due by 11:59 p.m. ET on June 22.