Are You a Joint Employer?
Today, the U.S. Department of Labor (DOL) issued guidance on joint employment in the form of an administrator's interpretation. In addition to the guidance, they also published a post on the DOL Blog, Are you a Joint Employer? This interpretation is a wake-up call prompting companies to review their relationships with staffing agencies, labor providers, independent contractors, and subcontractors.
After studying the guidance, companies should evaluate whether they will be considered joint employers with their business partners converting the employee of the business partner to employees of the company. If found to be a joint employer, companies will be jointly and severally liable for payment of minimum wage, overtime, and damages and penalties if their business partners violate the Fair Labor Standards Act (FLSA) or the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), two federal laws that govern how employees are paid.
According to the DOL, this issue of joint employment exists in all industries, especially the construction, agricultural, janitorial, warehouse and logistics, staffing, and hospitality industries. This DOL interpretation demonstrates the DOL's belief that the concept of joint employment, "should be defined expansively" under the FLSA and MSPA. The DOL's guidance describes two types of joint employment relationships — horizontal and vertical. Whether to apply a horizontal or vertical joint employment analysis depends on the circumstances of the case.
HORIZONTAL JOINT EMPLOYMENT. The focus of a horizontal joint employment analysis is the relationship and association between the two potential joint employers. The joint employment regulation under the FLSA provides guidance in evaluating these cases. Typically, in a horizontal joint employment case there exists an established or admitted employment relationship between the employee and each of the employers. Often the employee performs separate work or works separate hours for each employer. Examples of relationships that may give rise to horizontal joint employment include:
- Separate restaurants that share economic ties and control of employees. An employee is employed at two locations of the same restaurant brand. The two locations are operated by separate legal entities (Employers A and B). The same individual is the majority owner of both Employer A and Employer B. The managers at each restaurant share the employee between the locations and jointly coordinate the scheduling of the employee's hours. The two employers use the same payroll processor to pay the employee, and they share supervisory authority over the employee. The employers are joint employers and are joint and severally liable for any violation of the FLSA or MSPA.
- Home health care providers that share staff and have common management. A CNA works at Nursing Home A for 25 hours in one week and at Nursing Home B for 25 hours during that same week. Nursing Homes A and B are owned by the same entity, managed by the same Board of Directors, and share the CNA during different days of the week. Nursing Home A and Nursing Home B are joint employers. Therefore, CNA's hours for the week must be added together to determine overtime pay eligibility. Nursing Home A and Nursing Home B are jointly and severally liable for paying CNA for 40 hours at her regular rate and for 10 hours at the overtime rate. If CNA does not received 10 hours of overtime compensation in total, CNA will have a claim under the FLSA against both Nursing Home A and Nursing Home B.
VERTICAL JOINT EMPLOYMENT. The focus of the vertical joint employment analysis is the relationship between the employee and the potential employer and whether an employment relationship exists between them. The analysis must determine whether, as a matter of economic reality, the employee is economically dependent on the potential joint employer. The DOL's position on joint employment is similar to its position on misclassification of independent contractors communicated in an administrator's interpretation in July of 2015. Examples of relationships that may give rise to a vertical joint employment include:
- Employee of a Subcontractor. A laborer is employed by Drywall Company, which is an independent subcontractor on a construction project. Drywall was engaged by the General Contractor to provide drywall labor for the project. Drywall hired and pays the laborer. The General Contractor provides all of the training, equipment, materials, and workers' compensation insurance for the project. The General Contractor reserves the right to remove the laborer from the project, controls the laborer's schedule, and provides assignments on site, and both Drywall and the General Contractor supervise the laborer. Laborer is an employee of the General Contractor.
- Farmworker who is economically dependent on the grower. Where a farm labor contractor is not actually an independent contractor but is an employee of the grower (i.e., is economically dependent on the grower as a matter of economic reality), then all of the farm labor contractor's farmworkers are also employees of the grower.
- Nurses placed at a hospital by staffing agencies. A nurse is placed at a hospital, takes direction form the hospital staff, is provided all of the equipment and supplies needed to perform the job by the hospital. Hospital is a joint employer of the nurse.
Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.