On Wednesday, January 20, 2016, the U.S. Department of Labor’s Wage & Hour Division issued Administrator’s Interpretation No. 2016-1 that expands and explains the “joint employer” standard under the Fair Labor Standards Act (“FLSA”).
It has been long established that an employee can have two or more employers for the work that he or she is performing under the FLSA. When two or more employers jointly employ the same employee, the employee’s hours worked for all of the joint employers during the work week are added together and considered as one employment, including for purposes of calculating whether overtime pay is due. Further, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA.
Construction Industry: Why Should You Care About Being Deemed a Joint Employer?
First, the Interpretation specifically calls out the construction industry in its memorandum. Next, if you are deemed to be a joint employer with another company, the companies together must ensure compliance with the applicable wage and hour laws, including payment of overtime for all hours worked over 40 during the workweek. (Of course, some employees are exempt and excluded from the FLSA.)
Expansion and Analysis of Joint Employment
While this Interpretation analyzes and expands the “joint employer” standard in a memorandum, it is important to keep in mind that this Interpretation is not law. The Interpretation serves as a guide for the DOL’s Wage & Hour Division in its enforcement of the FLSA. However, some courts may find the Interpretation to be persuasive.
The Interpretation analyzes both a. horizontal joint employment and b. vertical joint employment.
Horizontal Joint Employment
The Interpretation describes horizontal joint employment as existing 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 analysis focuses on the relationship of the employers to each other.
For example, the same principals own an excavation business and a road building business. Payroll and administration for companies are handled out of the same office. Employees are sometimes assigned to work for the excavation business and sometimes assigned to perform work for the road building business. The DOL’s Wage & Hour Division would likely find the two companies to be horizontal joint employers.
According to the Interpretation, the following factors will be considered when analyzing whether a horizontal joint employment relationship exists:
- Common ownership
- Overlapping officer, directors, executives, managers
- Shared control of operations
- One company supervises the other
- Treat the employees as one pool of employees available to both companies
- Shared clients or customers
- Agreements between the companies
The degree of association between the companies is the focus of this analysis.
Vertical Joint Employment
The Interpretation describes horizontal joint employment as existing where “the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” This is an “economic realities” test rearing its head again with the DOL. We have previously discussed an “economic realities” test in our post looking at “Employee or Independent Contractor?” under the FLSA
A simple example of a potential vertical joint employment situation is a framing subcontractor sending its employees to work on a project being managed and directed by a general contractor. The DOL’s Wage & Hour Division will now look at the “economic realities” of the employees’ relationship with both the framing subcontractor and the general contractor and analyze the “economic realities” of the employee’s relationship with each company.
The Interpretation provides 7 factors when analyzing whether the “economic realities” show that a vertical joint employment relationship exists:
- Directing, Controlling, or Supervising the Work Performed. Supervision and control over the employee suggests it is more likely a vertical joint employment relationship exists. The control can be indirect (for example, the general contractor controlling the framing sub’s employee through the framing sub);
- Controlling Employment Conditions. Ability to hire and fire the employee, modify employment conditions, determine the rate of pay are indicators of a vertical joint employment relationship;
- Permanency and Duration of Relationship. Indefinite, permanent or long-term relationship suggest economic dependence and a vertical joint employment relationship (for example, the framing sub’s employees always work for the same general contractor on multiple projects in a row);
- Repetitive and Rote Nature of Work. Repetitive and unskilled work indicate economic dependence and accordingly, joint employment;
- Integral to Business. If the employee’s work is an integral part of the potential joint employer’s business, that fact indicates that the employee is economically dependent and accordingly, joint employment;
- Work Performed on Premises. An employee working on premises owned or controlled by the potential joint employer indicates that the employee is economically dependent on the potential joint employer and accordingly, joint employment. (remember, in many cases a general contractor will control a job site)
- Performing Administrative Functions Commonly Performed by Employers. To the extent that the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, or providing tools and materials required for the work, those facts indicate economic dependence by the employee on the potential joint employer.
Why did the DOL issue this new Interpretation?
The DOL contends “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.”
Further, the DOL states the Interpretation is “an effort to ensure that workers receive the protections to which they are entitled and that employers understand their legal obligations.”
What should you do?
In instances where (1) an employee works for two employers who are associated or related in some way with respect to the employee (i.e. horizontal); or (2) the employee’s employer is a subcontractor or otherwise provides labor to another employer (i.e. vertical), the possibility of joint employment should be considered.
An analysis of potential joint employment should be performed using Administrator’s Interpretation No. 2016-1. Whether to apply the horizontal joint employer analysis or the vertical joint employer analysis depends on the circumstances of the case. If a joint employment relationship exists, make sure you are in compliance with the applicable wage and hours laws, including the payment of overtime compensation.
Photo: Grand Canyon National Park