Proposed Rule Change to Joint-Employer Status

The United States Department of Labor (DOL) recently proposed changes to joint-employer status under the Fair Labor Standards Act (FLSA) and clarified the responsibilities of joint-employers to employees. The comment period for the proposed rule ended in June. The Department is now reviewing comments and could be issuing a final rule at any time. Here’s what employers need to know about the proposed rule.

Four-Factor Test

There are several significant clarifications and revisions to the definition of the joint-employer. In fact, this will be the first meaningful update to the definition since the DOL adopted the definition over 60 years ago. The proposed rule change will also make the definition consistent with the National Labor Relations Board’s proposed definition for joint-employer status. 

The major and most meaningful change involves a proposed multi-factor test that would be applied to determine whether employers are joint-employers under FLSA and share liability for wage and hour violations. This test is already being applied in the courts. The purpose behind the change is to provide clarity to employers, reduce uncertainty, and improve consistency in court and agency decisions regarding joint-employer status.

The four-factor test is designed to narrow the definition of joint-employer to those employers who exercise the authority to do any of the following:

• Hire or fire an employee.
• Supervise and control an employee’s work schedule or employment conditions.
• Determine an employee’s rate of method of pay.
• Maintain a worker’s employment records. 

The DOL clarified in the proposed rule change that possessing the authority over one of the four categories above was not enough to show joint-employer status; the employer must actually exercise that authority to show joint-employer status. 

The proposed rule permits other factors to be considered during the analysis, but only if it is indicative of whether the joint-employer is “exercising significant control over the terms and conditions of the employee’s work or otherwise acting directly or indirectly in the interest of the employer in relation to the employee.” For example, a hotel is a joint-employer if it contracts with a janitorial business to clean the facility if it exercises sufficient control (both directly and indirectly) over the terms and conditions of the employee employment. Sufficient control could include supervising the employee's work, determining their schedules on a regular basis, and directly (or indirectly) firing the janitorial employees.

Other Meaningful Rule Clarifications

The DOL also provided helpful clarification regarding an employee’s “economic dependence” on the employer. According to the proposed rule, “economic dependence” does not determine joint-employment status under FLSA.

Additionally, the contractually reserved right of a business to exercise authority over an employee is also not a determining factor when analyzing joint-employer status. 

The proposed rule change also included helpful clarifying information regarding other factors that do not influence the analysis, including:

• Whether the business model was a franchise.
• Whether an employee handbook was provided to the franchisee.
• Whether there was a separate business operating on company property.
• Whether a health or retirement plan is offered to an employer.
• Whether an employer is required to offer minimum wages or put specific policies in place regarding workplace safety, sexual harassment, and other employment matters. 

Hypotheticals can give life to the proposed rule changes and may be very helpful for employers to review. The illustrative examples can be found here.

Conclusion

At this point, it’s unclear when the final rule will be published, but it would be wise for employers to review the proposed changes in light of their business operations and determine whether organizational adjustments should be made. If questions persist, consult legal counsel regarding the potential impact on your organization.

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Featured Image by Rebecca Sidebotham.