Regulatory Changes Expand Joint Employer Liability

“Joint employment” arises in circumstances in which a worker has an employment relationship with two or more entities at the same time. Where a joint employment relationship is found to exist, both employers are responsible for ensuring full compliance with the Fair Labor Standards Act (“FLSA”), including overtime pay obligations.

Companies that rely on staffing agencies to directly hire workers for their labor force have often done so to simplify their obligations and reduce the legal exposure arising from direct employment relationships. However, depending on the factual circumstances in play, such an arrangement may cause both the staffing agency and the company it serves to assume joint employer status.

Earlier this year, the Wage and Hour Division of the U.S. Department of Labor (“WHD”) issued an Administrator’s Interpretation (“AI”) expanding the circumstances under which a company may be deemed a joint employer under the FLSA. The guidance set forth by the new AI is detailed and complex, but the bottom-line is this: according to the AI, the “economic realities” of a worker’s employment relationship – as opposed to merely the “control” a company is able to exert over a worker – should dictate whether a company is a joint employer. According to the AI, “[t]he analysis must determine whether, as a matter of economic reality, the employee is economically dependent on the potential joint employer.” The AI sets forth the following seven “economic reality” factors which must be considered to determine whether joint employment exists:

  • Directing, Controlling, or Supervising the Work Performed – according to the AI, such control suggests that the employee is economically dependent on the potential joint employer; therefore, a joint employment relationship may exist.
  • Controlling Employment Conditions – control over the employee such as the power to hire, to modify employment conditions, or to determine the rate or method of pay indicates that the employee is economically dependent on the potential joint employer.
  • Permanency and Duration of Relationship – permanent or indefinite employment suggests economic dependency indicative of joint employment.
  • Repetitive and Rote Nature of Work – the performance of work that is repetitive or rote, unskilled, and/or requires little or no training weighs in favor of 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 on the potential joint employer.
  • Work Performed on Premises – the employee’s performance of work at a site owned or controlled by the company weighs in favor of a joint employment finding.
  • Performing Administrative Functions Commonly Performed by Employers – where a company performs “administrative functions” for a worker, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work, such facts indicate economic dependence by the employee on the potential joint employer.

In light of the evolving regulatory landscape, companies should be mindful of the structure of their staffing agency relationships to help reduce compliance risks. A company sharing joint employer status with another entity should work to ensure that the other entity – staffing agency or otherwise – complies with the FLSA and other state and federal laws in relation to the joint employees.

Please contact Wright Beamer for your company’s employment and labor law needs.

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