New DOL Joint Employer Test Seeks to Give Employers Clarity
On April 1, 2019, the U.S. Department of Labor (DOL) proposed a new rule to determine when businesses jointly employ workers under the Fair Labor Standards Act (FLSA). The DOL’s proposed rule is designed to make the joint employer analysis “simple, clear-cut and easy to apply” and it is similar to the joint employer test adopted by the Ninth Circuit in 1983 and a number of other appellate circuit courts since.
The proposed rule lays out four key factors that will help analyze whether a business qualifies as a joint employer of a group of workers:
1. If the business can hire or fire employees;
2. Whether the business controls workers’ schedules or conditions of employment;
3. Whether the business determines workers’ pay rate and method of payment; and
4. If the business maintains workers’ employment records.
Under this four factor test, if two businesses are deemed joint employers under the FLSA then the responsibility for workers’ wages, including the obligation to properly pay minimum wages and overtime, is shared between the businesses. Use of this proposed test is intended to reduce uncertainty over joint employer status and clarify who is responsible for employment protections.
Along with the four key factors, the DOL noted additional factors could be used for analyzing joint employment if it appears a potential joint employer is either “exercising significant control” over employees’ work or “otherwise acting directly or indirectly in the interest of the employer in relation to the employee.” The DOL did note in the proposed rule that a worker’s purported “economic dependence” on a business should not play a part in any joint employer analysis. Further, a company’s business model, such as a franchisor-franchisee relationship, or certain business arrangements, like the implementation of sexual harassment policies or minimum wage requirements, do not make joint employer status more or less likely.
EXAMPLES OF NEW PROPOSED TEST
Along with the proposed rule, the DOL provided a set of examples to help clarify joint employer status. Here are two of the examples:
Example 1: An individual works 30 hours per week as a cook at one restaurant establishment, and 15 hours per week as a cook at a different restaurant establishment affiliated with the same nationwide franchise. These establishments are locally owned and managed by different franchisees that do not coordinate in any way with respect to the employee. Are they joint employers of the cook?
Answer: Under these facts, the restaurant establishments are not joint employers of the cook because they are not associated in any meaningful way with respect to the cook’s employment. The similarity of the cook’s work at each restaurant, and the fact that both restaurants are part of the same nationwide franchise, are not relevant to the joint employer analysis, because those facts have no bearing on the question whether the restaurants are acting directly or indirectly in each other’s interest in relation to the cook.
Example 2: An individual works 30 hours per week as a cook at one restaurant establishment, and 15 hours per week as a cook at a different restaurant establishment owned by the same person. Each week, the restaurants coordinate and set the cook’s schedule of hours at each location, and the cook works interchangeably at both restaurants. The restaurants decided together to pay the cook the same hourly rate. Are they joint employers of the cook?
Answer: Under these facts, the restaurant establishments are joint employers of the cook because they share common ownership, coordinate the cook’s schedule of hours at the restaurants, and jointly decide the cook’s terms and conditions of employment, such as the pay rate. Because the restaurants are sufficiently associated with respect to the cook’s employment, they must aggregate the cook’s hours worked across the two restaurants for purposes of complying with the Act.
WHAT HAPPENS NEXT?
While the DOL provided additional examples of how to use the proposed four factor test, it is still not clear this test will be adopted after public comments and opinions are accepted and analyzed by the DOL. Early opinions from plaintiffs’ advocates and lawyers show strong disagreement with this test and believe it is overly employer friendly in that it will find companies are not joint employers except in all but the most unusual circumstances. It is also argued that. although the DOL claims to have adopted a test already in use by circuit courts across the country, the DOL’s proposed four factor test is not the same test or analysis and essentially bucks a vast body of case law that provides a more expansive test in determining joint employment. Time will tell if this test is adopted by the DOL and, if so, to what extent the test will benefit employers.
If you have any questions regarding the DOL’s proposed rule, applicable examples or how it applies to your company, please contact your Thompson Coe attorney at (651) 389-5000 or at myHRgenius@thompsoncoe.com. You can also find additional information and tips for your company and HR professionals at https://myhrgenius.co.
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