Litigation under the Fair Labor Standards Act (FLSA) remains one of, if not the most, active area of litigation in the country. Last week, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) issued an administrator’s interpretation establishing new standards for determining joint employment under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) that likely will lead to more alleged violations of both statutes on “joint employer” theories. All companies should examine relationships with workers, even those the company does not directly pay, to determine any potential risks if a joint-employment finding is made.
The WHD interpretation flatly rejects the common-law definition of “employment,” which exclusively focuses on the amount of control that an employer exercises over an employee. The interpretation criticizes the common-law approach as unduly narrow, arguing that it neglects the “broader economic realities of the working relationship.”
The interpretation seeks to clarify the difference between horizontal and vertical joint employment, and states that the FLSA’s and MSPA’s regulations provide complementary guidance on joint employment. The interpretation explains that horizontal joint employment exists where “the employee has employment relationships with two or more employers, and the employers are sufficiently associated or related with respect to the employee that they jointly employ the employee.” To analyze whether the employers are sufficiently related, the Interpretation created a non-exhaustive list of factors to consider, including:
- Who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have common owners)?
- Do the potential joint employers have any overlapping officers, directors, executives, or managers?
- Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)?
- Are the potential joint employers’ operations intermingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for)?
- Does one potential joint employer supervise the work of the other?
- Do the potential joint employers share supervisory authority for the employee?
- Do the potential joint employers treat the employees as a pool of employees available to both of them?
- Do the potential joint employers share clients or customers?
- Are there any agreements between the potential joint employers?
The interpretation offers several examples of horizontal joint employment, including when a waitress works for two restaurants operated by the same entity or where two orchards have an agreement to share workers and a harvester picks produce at both.
Vertical joint employment exists where a worker has an employment relationship with one entity (the “intermediary employer”) but the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work (the “potential joint employer”). In determining whether vertical joint employment exists, the interpretation notes that a threshold question is whether the intermediary employer is an employee of the potential joint employer. If so, then any employee of the intermediary employer is automatically an employee of the potential joint employer (referred to in some states as “look-through rule”). If not, the interpretation shifts to a second inquiry, which examines the employee’s relationship with the potential joint employer, and focuses specifically on the economic realities of the working relationship. The interpretation points to an MSPA regulation that provides a set of factors to apply during an economic-realities analysis in vertical joint-employment cases, which includes:
- directing, controlling, or supervising the work performed;
- controlling employment conditions;
- permanency and duration of relationship;
- repetitive and rote nature of work;
- work integral to business;
- work performed on premises; and
- performing administrative functions commonly performed by employers.
The interpretation notes that without explicitly relying on the regulation, several courts have considered similar factors in deciding FLSA cases. The interpretation admonishes courts that only or primarily address the potential joint employer’s control, criticizing it as “inconsistent with the breadth of employment under the FLSA.”
The interpretation warns that it is becoming increasingly more common for a worker to be jointly employed by two or more employers. As a result, employers should: (1) expect that their relationships with workers in which multiple entities are involved will receive greater scrutiny going forward; and (2) closely examine these relationships, even where the company does not directly pay the workers, to assess potential findings of joint employment.