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Whose Employees are They Anyway? DOL Issues New Rule on Joint Employers

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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 the test.

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 more intentionally.

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.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.