Being designated as a joint employer can have far-reaching ramifications per the FLSA.
If you are the owner of a business or franchise that:
- has multiple locations
- utilizes contract labor
- shares employees with another related employer
This matters to you, namely, multiple employers can be liable for one employee under the Fair Labor Standards Act (FLSA). The Department of Labor will use this new interpretation to determine whether violations of the FLSA have occurred and whether legal actions should be commenced.
The interpretation highlights a concept that has been the law for quite some time, but was never emphasized or utilized as much as it is by the current Department of Labor. Namely, that multiple employers can be liable to one employee under the FLSA.
That was not a misprint. Under the FLSA an employee can have more than one employer; the concept is settled law. The scope of the joint employment concept is the subject of the interpretation, which notes that “the concepts of employment and joint employment under the FLSA … is notably broader than the common law concepts of employment and joint employment, which look to the amount of control that an employer exercises over an employee.”
In determining whether an employee has more than one employer, the interpretation provides that the Department of Labor will look to see if the employment relationship fits into one or two employment relationships – Horizontal Joint Employment and/or Vertical Joint Employment. In a horizontal joint employment situation, the relationship between the two employers is relevant; whereas, in a vertical joint employment situation the economic realities of the relationships between the employee and the employers, and how dependent the employee is on each employer, is analyzed.
Horizontal Joint Employment
Horizontal joint employment exists when two (or more) employers each separately employ an employee and are sufficiently associated with or related to each other with respect to the employee. Examples of horizontal joint employment may include “separate restaurants that share economic ties and have the same managers controlling both restaurants, or home health care providers that share staff and have common management.”
Factors that are relevant in determining whether there is horizontal joint employment are:
- Who owns the joint employers (i.e., is there common ownership);
- Do the potential joint employers have any overlapping management;
- Do the potential joint employers share control over operations;
- Are the potential joint employers’ operations inter-mingled
- Do the potential joint employers treat the employees as a pool of employees;
- Do the potential joint employers share clients or customers; and
- Are there any agreements between the joint employers
The interpretation’s examples of horizontal joint employment are focused on the restaurant industry. For instance, if a waitress or cook works at two different restaurant locations, with both restaurants being owned by the same company, the waitress’ or cook’s time likely needs to be aggregated for purposes of overtime. For instance, if the cook worked 25 hours at restaurant 1 and 20 hours at restaurant 2, the effect of horizontal joint employment would be the aggregation of these hours and the payment of 5 hours of overtime to the cook.
Vertical Joint Employment
Vertical joint employment exists when an employee of one employer is economically dependent on another employer. An example might be a construction worker that works for a subcontractor, also is jointly employed by the general contractor, or a hotel that contracts for housekeeping services.
According to the interpretation, the threshold question is whether the intermediary employer (who may simply be an individual responsible for providing labor) is actually an employee of the potential joint employer. In that case, all employees of the intermediary employer are employees of the potential joint employer.
If the intermediary employer is not an employee of the potential joint employer, then an analysis of the economic realities of the employee and potential joint employer is performed. The economic realities are analyzed primarily via seven factors:
- Does the potential joint employer direct, control or supervise the work performed beyond a reasonable degree of contract performance oversight;
- Does the potential joint employer control employment conditions, e.g., can it hire, fire, discipline the employee or control the employee’s pay;
- Does the employee have a indefinite, permanent or full-time relationship with the potential joint employer;
- Is the work performed repetitive, unskilled or require little training;
- Is the employee’s work an integral part of the potential joint employer;
- Is the employee’s work performed on the potential joint employer’s premises;
- Does the potential joint employer perform administrative functions for the employee, e.g., payroll, insurance, providing safety equipment, housing or transportation.
The interpretation provides examples of vertical joint employer in the construction and farm labor industries.
Employers can expect that the Department of Labor will continue to expand its enforcement reach over at least the coming year. This latest interpretation regarding joint employer follows the National Labor Relations Board’s decision regarding joint employer last fall. Whether it continues beyond January of 2017, depends upon what happens in the Presidential election this November. Until we know for sure, however, employers need to take note of this new interpretation and self-audit their operations.
For employers with common ownership that operate multiple locations (including franchisees), if you share employees between those locations, you are likely a horizontal joint employer under this interpretation. As a result, you must aggregate the hours that an employee works among all of your locations for overtime purposes.
For employers that utilize staffing agencies, labor providers or other intermediary employers, you are possibly a vertical joint employer. As a result, you need to review and analyze your relationship with the staffing agency, labor provider and the employees to ensure that you are not a joint employer, who is jointly and severally responsible for minimum wage and overtime liabilities.
Also, there is something that bears monitoring beyond horizontal and vertical joint employment. Several times in the interpretation, the Department of Labor references the “suffer or permit work” standard that is set forth in the FLSA (and child labor laws) to “prevent employers from using ‘middlemen’ to evade the laws’ requirements.” The repeated reference to this phrase might be used in the future to justify further expansion of joint employer or other wage and hour provisions.
Franchisors who might have been expecting clarity from this interpretation did not get it, as the interpretation does not specifically address franchising. Franchisors and franchisees must continue to monitor the actions of the Department of Labor in its application of joint employer related to the FLSA, NLRA, Title VII and OSHA.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.