Joint Employment As Interpreted by the Department of Labor

April 28, 2016

The federal Fair Labor Standards Act (FLSA) requires that all employees be paid a minimum wage and overtime, if the employee works more than 40 hours in a week. However, an important issue arises when determining who is responsible for paying the employee. In an increasingly common scenario, more than one employer can be held responsible. Federal law uses the facts of the relationship between the employee and those who provide the work to determine who is a “joint employer.”

The Department of Labor’s Wage and Hour Division (WHD) recently published an administrative interpretation on whether or not a “joint employment” relationship exists for purposes of the FLSA. The interpretation is based upon a wide array of federal court cases that contemplated the definition and set standards on what facts make the determination.

Whether an employment relationship exists largely depends on what law the relationship is being used for. For example, under the FLSA, to “employ” is to “suffer or permit to work.” Other statutes may use narrower definitions, making it possible for an entity to be an employer under one law, but not under another, despite all facts of the employment relationship being equal.

Horizontal Joint Employment

The WHD identified two types of joint employment: vertical and horizontal. Two employers sharing a single employee may establish a horizontal joint employment depending on their relationship with each other, with respect to the employee. The WHD offers several factors of the relationship that could contribute to a finding of joint employment, such as the sharing of:

  • Owners;
  • Officers or management;
  • Control over operations, including hiring, firing, scheduling, and payroll;
  • Supervision over work performed;
  • A common pool of employees; or
  • Clients and customers.

One example would be two restaurants owned by the same entity and managed by the same people. If the two restaurants work with each other to create an employee’s schedule, and could potentially discipline the employee for actions performed at either restaurant, the facts tend to support a joint employment relationship. Under the FLSA, an employee who qualifies for overtime would be able to add up hours worked at both joint employers each week and be eligible for overtime if those hours exceed 40.

Vertical Joint Employment

Vertical joint employment involves the use of an “intermediary,” such as a temp agency, to connect a worker to the recipient of the work, which may potentially be a joint employer with the intermediary. A vertical relationship focuses not on the connection between employers to each other, but on the relationship between the employee and the potential joint employer.

The WHD creates a two-step process to determine whether a vertical joint employment exists. First, it must be determined whether the intermediary is actually itself an employee of the potential joint employer. For example, if the economic realities indicate that a farm labor contractor is actually an employee of produce growers, then any employee of the farm labor contractor is jointly employed by the contractor and the growers.

If the intermediary is not an employee, then the primary issue is whether an employee of the intermediary is economically dependent on the potential joint employer. The WHD provides a list of seven factors that the regulations on the FLSA weigh in ascertaining economic dependence:

    1. Direction, control, and supervision of work performed;
    2. Control over employment conditions;
    3. Permanency and duration of the relationship;
    4. Skill level required for work;
    5. If the work performed is integral to business;
    6. Whether the work is performed on premises; and
    7. Does the potential joint employer perform administrative functions.

The presence or absence of any of the factors is not dispositive of the existence of any type of relationship. The WHD advocates that it would be inappropriate to try to determine an employment relationship solely by observing the level of control over the worker.

Conclusion

The factors of horizontal and vertical joint employer relationships are not only for courts to consider. Employers themselves need to pay attention to any agreements they have with contractors, and to the relationships they have with affiliates with which they share any employees.

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