In January 2016 the Department of Labor (DOL) Wage and Hour Division (WHD) issued an Administrative Interpretation (AI) (No. 2016-1, 1/20/16) that would significantly expand the number of employers who would be classified as “joint employers” under the Fair Labor Standards Act (FLSA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Employers are rightfully concerned over increased potential liability for violating the FLSA or MSPA.
If two or more employers are considered a joint employer, they may be held jointly and severally liable for minimum wage, overtime and other violations of the FLSA and MSPA. The AI notes: “When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the work week are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due.”
The AI outlines two types of joint employer arrangements:
- Horizontal – where the focus is on the employers and their relationship to each other. For example, a waitress works for two restaurants that are owned by the same employer.
- Vertical – where the focus is on the employer and another intermediary (such as a staffing agency or labor provider) where the economic realities show that the employee is economically dependent on both employers. For example, a janitor hired by a third-party staffing agency places the employee with a company. The WHD will examine the “economic realities” of the employee’s relationship to both employers.
The AI lists relevant factors to analyze in making a determination of a joint employer relationship:
A. Horizontal Joint Employer Factors
- Shared Ownership.
- Overlapping officers, directors, executives or managers.
- Shared control over operations.
- Intermingled operations.
- Supervision by one employer over the other.
- Shared supervisory authority.
- Treated employees as a pool available to both employers.
- Shared clients or customers.
- Have agreements between each other.
B. Vertical Joint Employer Factors
Interestingly, the AI adopts the existing MSPA regulations outlining the seven “economic realities” factors:
- 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.
It is clear that the purpose of the AI was to expand the scope of the FLSA and MSPA to more employers thereby increasing the likelihood of recovering pay for violations of wage and hour laws. As admitted by the AI, the expansion of the joint employer definition was “to achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations.”
Particularly vulnerable are construction, agricultural, janitorial, warehouse and logistics, staffing, hospitality, health care, restaurant and security industries since all were specifically mentioned in the AI.
While courts are not necessarily bound by this administrative guidance, plaintiff advocates are likely to present it to the courts for instruction and persuasion. Employers must be on guard and review their staffing arrangements in light of this new guidance. With the expanded scope of joint employer standard, employers face FLSA and MSPA liability, including the potential of being responsible for overtime that it does not control.
This is another in a series of aggressive efforts by federal agencies to expand the application of employment laws. Recent examples include the expedited union election rules, handbook challenges and expansion of joint employment in union organizing by the National Labor Relations Board and the DOL’s pending regulations narrowing exemptions and limiting independent contractor status.
If you have any questions regarding this article, please contact your Davis & Kuelthau, s.c. attorney.