Whose Employees are They Anyway? DOL Issues New Rule on Joint Employers
Last week, the Department of Labor issued a new, final rule
defining the test needed to determine joint employment status under the Fair
Labor Standards Act (FLSA). The rule narrows the factors which agencies and
courts should consider in finding this status, and it offers employers a
certain amount of clarity on the doctrine. This adds to the continued attempt
to divine the term “employee” under U.S. law that we have addressed in the past
The rule identifies a four-factor test to determine whether
an entity is a joint employer of a worker under the FLSA. The factors include
whether: (1) it can hire or fire the worker; (2) it controls the worker’s
schedules and employment terms; (3) it controls the worker’s compensation
amount and structure; and (4) it maintains the worker’s employment records.
Analysis of these factors is limited to a potential employer’s actual control
over them (as opposed to indirect influence). Certain other factors, which were
relevant under previous interpretations of joint employment, are excluded from
That the factors above are limited to defined features of
working relationships offers much-needed guidance to companies interested in
entering joint ventures or staffing contracts that involve the use of a shared
workforce. By addressing the factors listed above in deal or contract
structures, employers can manage the nature of their workforce relationships
Whether or not companies structure their workforce
relationships to meet or avoid joint employer status remains a business call.
For instance, some companies may prefer to create employment relationships in
order to benefit from workers’ compensation liability caps, whereas other
companies may prefer to keep their service providers at a distance in order to
avoid becoming subject to another company’s unionized workforce or other
liabilities, such as those under the FLSA. A particular company’s answer to
this question may vary based on its unique circumstances.
However, potential joint employers should not assume that a
deal structure which fulfills or avoids the four factors above will forever
guarantee their desired classification status. For one, courts are not bound to
follow this interpretive rule. For another, the definition of joint employment
remains a hotly contested political issue and is subject to change (e.g.,
the Trump DOL revoked the Obama DOL’s interpretation of the joint employment
doctrine in its first year).
That said, and to end on a bright note, keeping this rule’s
guidance in mind for structuring shared operations will at least provide
employers with some framework to use. The new rule becomes effective on March 16, 2020.