DOL Will Propose Limiting Joint-Employer Overtime Liability

Joint-employer regulations would clarify who is responsible for workplace violations

Stephen Miller, CEBS By Stephen Miller, CEBS March 6, 2019
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The Department of Labor (DOL) has sent to the White House for review a proposed rule that would narrow the definition of a joint employer under the Fair Labor Standards Act (FLSA). While the rule hasn't been made available to the public yet, White House review usually indicates that the proposal will be published soon.

The DOL's rule will address the circumstances under which businesses can be held jointly responsible for overtime-pay violations by their contractors or franchisees. It is separate from a proposed National Labor Relations Board (NLRB) rule defining joint employment under the National Labor Relations Act that is expected to be finalized later this year.

On Feb. 28, the DOL sent its proposed rule, the Joint Employer Status Under the Fair Labor Standards Act, to the Office of Information and Regulatory Affairs, which is part of the White House's Office of Management and Budget (OMB), according to a notice published on the agency's website.

A DOL regulation "would bring clarity and certainty for defining joint employer status under the FLSA, as regulations have the force of law" when adopted through formal notice-and-comment rulemaking, said Mark Kisicki, an attorney in the Phoenix office of Ogletree Deakins.

"Various federal circuit courts have adopted differing standards for defining whether an entity is a joint employer of another employer's employees," Kisicki noted. "If the DOL adopts a regulation to clearly define what is required to be deemed a joint employer under the FLSA—and that regulation survives legal challenges that inevitably will be brought by interest groups advocating for a broader standard—the regulation will provide a clear single standard that will apply to all employers, regardless of where their employees work."

Replacing Obama-Era Guidance

Shortly after President Donald Trump's labor secretary, Alexander Acosta, took office in 2017, he rescinded interpretive guidance that President Barack Obama's administration issued in 2015 and 2016. The guidance "dramatically expanded the scope of the concept" of joint employers' legal liability for overtime-pay violations under the FLSA, said Steve Bernstein, a partner in the Tampa, Fla., office of law firm Fisher Phillips. In addition to Acosta's action, "setting new regulations through notice-and-comment rulemaking would carry more legal weight and be more difficult for future administrations to rescind," Bernstein said.

New regulation is needed so that "businesses are able to forecast their projected liability from one year to the next," he noted, especially in the contingent-employer industry, such as placement agencies and professional employer organizations.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

NLRB Joint-Employer Proposal

The NLRB's proposed rule, published last September, clarifies who has to be at the bargaining table during union negotiations when a company, such as a contractor or franchisor, directly controls another entity's workers. The proposal revisits the NLRB's 2015 Browning-Ferris Industries decision, under which employers that reserved the right to control other companies but didn't exercise that right still could be treated as joint employers in collective bargaining disputes.

The NLRB's proposed rule "reflects a return to the previously longstanding standard that an employer may be considered a joint employer of another employer's employees only if the two employers share or codetermine the employees' essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction," the NLRB stated in its fact sheet. The comment period for the NLRB proposal is now closed.

Under the Obama-era guidance, "if a company had even indirect control over the working conditions of a contractor's or a franchisee's employees, or reserved the right to exercise such control, then that company might be considered a joint employer, which is a broad standard," said James Stone, managing partner in the Cleveland office of law firm Jackson Lewis.

The proposed DOL rule and the final NLRB rule are both expected to codify a narrower approach to determine the liability of a joint employer in workplace disputes. However, "the NLRB guidance will probably be more influential, because Browning-Ferris was a bigger change in existing law," Stone said.

The DOL and NLRB function independently of one another, but, he noted, "I'm sure each agency will be mindful of what the other agency is doing. They're aware of the same issues."

"For a number of legal, practical and philosophical reasons, it is safe to assume the DOL's rule will borrow heavily from whatever final rule the NLRB adopts," Kisicki pointed out. "During any presidential administration, the various labor and employment agencies generally have similar philosophical approaches to the laws they interpret and enforce. Clarity and consistency are primary concerns of the employer community, and the agencies are moving in tandem to address those concerns."

Clarity Sought

The guidelines for determining who is a joint employer "has been like a pingpong ball bouncing back and forth from one administration to the next, but I think we're all hopefully optimistic that we can at least get a little clarity now," Bernstein said. "Whether you're a business or employee, or in some cases a labor union, we all benefit from clarity."

Both the DOL and NLRB regulations, when each is finalized, will be "a big deal and potentially very good news for employers, especially if you're a franchisor or franchisee, a contractor, or any company that provides services on a contracted basis," Stone said. The clarification of who is a joint employer "is going to be a welcome development."

But it may not be the final word. "During the Obama administration, employer interest groups had great success challenging regulations adopted by both the DOL and the NLRB, and I would assume interest groups on the other side of this issue are already analyzing what challenges they should bring," Kisicki said.


Related SHRM Articles:

NLRB Chairman Defends Proposal to Define 'Joint Employer', SHRM Online, February 2019

D.C. Circuit Upholds Worker-Friendly Joint-Employer Definition, SHRM Online, January 2019

NLRB Reins in When Companies Are Joint Employers, SHRM Online, September 2018


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