Department of Labor Issues Joint Employer Guidance
In July 2015, the U.S. Department of Labor (DOL) issued guidance to assess whether a worker is properly classified as an independent contractor or an employee under laws like the Fair Labor Standards Act, which determines overtime, unemployment insurance and other obligations. Independent contractors are not covered under the act.
At the time, we noted that responding to mounting evidence that many employers nationwide have classified some of their employees as independent contractors as a cost-savings measure, there has been increased federal and state focus on whether workers are properly designated as independent contractors or if they instead should be considered company employees.
In September 2015, we reported on the National Labor Relations Board’s (NLRB) contentious decision in Browning Ferris Industries and how it expanded the test for finding joint-employer status.
More recently, on Jan. 20, DOL issued guidance on joint employment in the form of an Administrator’s Interpretation (AI), which it believed would be helpful concerning joint employment under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act.
While the joint employment concept is not new under the FLSA, DOL says the new guidance is necessary because as a result of continual changes in the structure of workplaces, the possibility that a worker is jointly employed by two or more employers has become more common in recent years and the traditional employment relationship of one employer employing one employee is less prevalent.
DOL specifically cited the construction industry, among others, as one where its Wage and Hour Division (WHD) encounters this employment scenario.
The Significance of Joint Employment
Joint employer status is important because a joint employer is deemed the legal employer of an employee even though that employee may not have been hired by a company or appear on the company’s payroll. In the construction industry, this means that if joint employer status is found, a developer is deemed the employer of his contractor’s employees or a contractor deemed the employer of his subcontractor’s employees.
The AI concedes that “[c]ertainly, not every subcontractor, farm labor contractor, or other labor provider relationship will result in joint employment,” however, as the AI notes, for those determined to be joint employers, the burden can be significant because: When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.
Horizontal and Vertical Joint Employment
The WHD differentiates between “horizontal” joint employment and “vertical” joint employment, and provides guidance on assessing each category.
Horizontal Joint Employment focuses on the relationship between two (or more) employers that “are sufficiently associated or related with respect to the employee such that they jointly employ the employee.” As an example, the AI discusses a waitress who works for two restaurants. Although the restaurants may be separate entities, they could be joint employers of the waitress if, for example:
- The same individual is the majority owner of both restaurants
- The managers at each restaurant share the employee between locations and jointly coordinate the scheduling of the employee’s hours
- The two employers use the same payroll processor to pay the employee
- The two employers share supervisory authority over the employee.
Vertical Joint Employment focuses on the employee’s relationship with the potential joint employer and whether that employer jointly employs the employee. Vertical joint employment exists “where the employee has an employment relationship with one employer … and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” DOL provides the following example of facts that are indicative of joint employment of a laborer by a general contractor:
A laborer is employed by ABC Drywall Company, which is an independent subcontractor on a construction project. ABC Drywall was engaged by the General Contractor to provide drywall labor for the project. ABC Drywall hired and pays the laborer. The General Contractor provides all of the training for the project. The General Contractor also provides the necessary equipment and materials, provides workers’ compensation insurance, and is responsible for the health and safety of the laborer (and all of the workers on the project). The General Contractor reserves the right to remove the laborer from the project, controls the laborer’s schedule, and provides assignments on site, and both ABC Drywall and the General Contractor supervise the laborer. The laborer has been continuously working on the General Contractor’s construction projects, whether through ABC Drywall or another intermediary.
The AI has identified seven factors as probative of the core question of whether the employee is economically dependent on the potential joint employer who, via an arrangement with the intermediary employer, is benefiting from the work.
- Directing, controlling, or supervising the work performed
- Controlling employment conditions
- Permanency and duration of relationship
- Repetitive and rote nature of work
- Integral to business
- Work performed on premises
- Performing administrative functions commonly performed by employers
While an AI merely provides guidance and does not carry the force of law, nonetheless, it does, arguably, signal DOL’s intent to increase aggressive enforcement of joint employment status in its investigations. Accordingly, builders are advised to review the “Takeaways,” referenced in the Browning Ferris article cited above:
- Review your contracts with your attorney
- Review your onsite practices
- Understand staffing agreements
As one commentator has noted, only time will tell the extent to which courts may defer, if at all, to this AI.