Labor Department Issues Final “Joint Employer” Rule

On January 12, 2020, the U.S. Department of Labor issued its final “joint-employer” rule that replaces an Obama Administration policy that potentially would have made more businesses liable for wage violations engaged in by franchisees and contractors. The new rule, which becomes effective March 16, provides a four-part test for determining whether a company is a joint-employer. The best way to understand how the Labor Department’s revised joint-employer rule will impact your business is to consult an experienced employment lawyer.

The Backdrop

The federal Fair Labor Standards Act (FLSA), requires employers to pay employees at least the federal minimum wage; the minimum wage in New York is higher (per the state’s wage and hour guidelines), however. The FLSA also mandates that nonexempt employees be paid overtime for hours worked over 40 hours per week. 

In addition, the FLSA recognizes that an employee may have a primary employer and one or more “joint-employers.” While the FLSA’s joint-employer provisions have not been significantly revised in over 60 years, the National Labor Relations Board (NLRB) and federal courts have issued conflicting rulings that have caused confusion for employers. The new rule clarifies this status for employers, which may be beneficial for franchises and small businesses that partner with a professional employment organization (PEO). 

What is a Joint Employer?

The DOL’s new rule essentially eases the standard for employers; this may reduce the frequency of litigation arising from alleged wage and hour violations. The new rule narrows the definition of joint-employer by establishing a four-factor test to determine whether the employer has the power to: 

  • Hire or fire an employee
  • Supervise and control an employee’s work schedule or employment conditions
  • Determine an employee’s rate and method of payment
  • Maintain a worker’s employment records

It is important to note that all four tests do not have to be met to establish joint-employer status. Moreover, a number of other factors are not considered in the analysis, including:

  • The company’s business model (e.g. franchise model)
  • Participating with an employer in an apprenticeship program
  • Requiring a business partner to establish minimum wage and other employment policies
  • Offering an association health or retirement plan to, or participating in such a plan with, an employer
  • Allowing an employer to operate a facility on the company’s premises

In sum, to be considered a joint-employer, a business needs to exert control over the employees.

Why This Matters

While the Labor Department’s new rule is designed to eliminate confusion for employers, some observers believe it will allow more employers to unfairly avoid liability for minimum wage and overtime violations. If you have questions about the status of your business under the joint-employer rule, or if you believe your employer has violated applicable wage and hour laws, you should consult an experienced employment lawyer.

Posted in: Employment law

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