Developing Joint Employment Under Federal Labor Laws

Earlier this year, the Department of Labor’s Wage and Hour Division (“WHD”) issued Administrator’s Interpretation No. 2016-1, an interpretive memorandum (“memorandum”) providing clarification to employers on whether a joint employment relationship exists when two or more businesses share the same worker.  The memorandum provides the WHD’s opinion of when employers may be considered joint employers under the Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agricultural Work Protection Act (“MSPA”), thereby creating joint and several liability between joint employers for compliance violations. The WHD’s memorandum is particularly important because in the event of joint employment, an employee’s hours worked for each of the joint employers during the workweek are aggregated and considered as a single employment relationship for purposes of calculating overtime premiums and related hours of work. Not surprisingly, this interpretive memorandum comes in response to employers’ increasingly widespread practice of sharing employees and the use of third party management companies, independent contractors, staffing agencies and labor providers.

The WHD addresses two potential forms of joint employment which it refers to as “horizontal” and “vertical” joint employment. If one or both of these forms of joint employment exist, the joint employers will be jointly and severally liable for violations under both the FLSA and the MSPA.

Horizontal Joint Employment

The WHD provides that horizontal joint employment may exist “where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.” The primary focus of horizontal joint employment is on the relationship between the employers. This type of joint employment may be present, for example, where two separate restaurants, which share economic ties, have the same managers controlling both restaurants, share staff, and have common management. The WHD provides several factors which may be relevant in assessing whether a horizontal joint employer relationship exists, such as:

  • who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners)
  • do the potential joint employers have any overlapping officers, directors, executives, or managers;
  • do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
  • are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
  • does one potential joint employer supervise the work of the other;
  • do the potential joint employers share supervisory authority for the employee;
  • do the potential joint employers treat the employees as a pool of employees available to both of them;
  • do the potential joint employers share clients or customers; and
  • are there any agreements between the potential joint employers.

Vertical Joint Employment

Distinguished from horizontal joint Employment, the WHD provides that vertical joint employment may be found when an employee is economically dependent on an employer who, via an arrangement with an intermediary employer, is benefitting from the work. This form of vertical joint employment typically exists when a potential joint employer has contracted for workers that are directly employed by an intermediary employer (usually a staffing agency, subcontractor, labor provider, or other intermediary employer), and those workers are economically dependent on the potential employer. The WHD points out that the threshold question in a joint employment case is whether the intermediary employer (who may be an individual or company responsible for providing labor) is actually, as a matter of economic reality,  an employee of the potential joint employer. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 729-30 (1947). (Depending on the industry, the “intermediary employer” could be, for example, a staffing agency, farm labor contractor, or any individual or company that is dependent on the grower as a matter of economic reality).  If an intermediary employer is actually determined to be an employee of the potential joint employer, all employees of the intermediary employer will also be considered employees of the potential joint employer and no vertical joint employment analysis need even occur.  Therefore, the existence of a vertical joint employment relationship focuses on the employee’s relationship with the employers.

The MSPA provides some specific factors of “economic realities” to consider when determining whether an economic dependency exists between a worker and a potential joint employer who is benefiting from the employee’s work, thus creating a vertical joint employment relationship. While these factors are specific to the MSPA, they are helpful when performing a similar analysis under the FLSA as the FLSA uses the same “economic realities” standard. These factors include:

  • does the potential joint employer direct, control, or supervise the work performed by the employee;
  • does the potential joint employer control employment conditions;
  • is there is permanent, full-time, or long-term relationship by the employee with the potential joint employer;
  • is the nature of employee’s work for the potential joint employer repetitive and rote;
  • is employee’s work an integral part of the potential joint employer’s business;
  • is the work by the employee performed on premises owned or controlled by the potential joint employer; and
  • does the potential joint employer perform administrative functions for the employee that are commonly performed by employers.

 What This Means for Employers

While the WHD’s memorandum serves merely as guidance and does not carry the force of law, it is indicative of the WHD’s sweeping efforts to find joint employment relationships in FLSA and MSPA cases. Additionally, courts, administrative agencies, and government enforcement officer will often rely on such interpretations of the law when making decisions.  Moreover, this broad view of the joint employment relationship is indicative of an expansive and growing effort on the part of many state and federal governmental agencies to define the employment relationship broadly and reduce the alternatives the modern workforce has developed and embraced.    Similar expansive interpretations have been aimed at the independent contractor relationships and the franchisor/franchisee relationship.  As such, employers should be proactive in determining if they are in a potential joint employment relationship and, if so, take steps to structure their current practices to avoid or reduce potential liability. At a minimum employers who have entered these types of relationships need to recognize the risks associated with the joint relationship and take appropriate precautions through contractual arrangements, including the proper use of indemnification, access, due diligence, insurance, and termination provisions.

If you have additional questions about joint employment or any other employment or labor related matters, we encourage you to reach out to one of our attorneys. For additional employment and labor updates, you can also visit our website at www.pkwhlaw.com.