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DOL Issues New Guidance On Joint Employment

On January 16, 2020, the U.S. Department of Labor (DOL) issued a final rule that will significantly revise its longstanding interpretation of joint employer status under the Fair Labor Standards Act (FLSA).  This update marks the first substantive change to the federal regulation concerning joint employer status (29 CFR Part 791) in over 60 years, and provides a new framework for assessing joint employer status when an employee performs work for an employer which simultaneously benefits another individual or entity.

The impetus for this revision stems from the Department’s concern that the existing regulation did not provide adequate guidance for “the most common joint employer scenario” where an employee does work that simultaneously benefits the employer and an entity with which the employee does not have a formal employment relationship.  Examples of such arrangements occur when an employee of a staffing agency does work that benefits both the staffing agency and the staffing agency’s client, or when an employee of a subcontractor does work that benefits both the subcontractor and the general contractor.  A staffing agency client and general contractor would both bear obligations under the wage and hour provisions of the FLSA if they were found to be joint employers.

Under the new final rule, which will go into effect on March 16, 2020, the DOL will apply a four-factor balancing test (derived from Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983)) in assessing whether a third entity which benefits from the work of another company’s employee should be considered a joint employer.  The four factors to be weighed are whether the “second” employer:

  • Hires or fires the employee;
  • Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  • Determines the employee’s rate and method of payment; and
  • Maintains the employee’s employment records

The Department unequivocally stated that while no single factor would be dispositive in determining joint employer status, the maintenance of employment records alone will not be sufficient to confer joint employment status. The weight to be given to each factor will vary with the circumstances of each case.

With the adoption of this balancing test, the Department hopes to bring “more certainty and clarity” as to which types of business arrangements will result in an entity being considered a joint employer subject to the wage and overtime rules of the FLSA.

The DOL summary of the new final rule and link to the Federal Register detailing the final rule are both available here.

 

 

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