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Attorney Blog, Human Resources

Department of Labor Issues New Rule Regarding Joint Employer Status Under the FLSA

Attorney Harrison Oldham

On January 13, 2020, the U.S. Department of Labor (DOL) released its long-awaited final rule regarding joint-employer status under the Fair Labor Standards Act (FLSA).  This rule sets forth principles governing the determination of joint employer liability under the FLSA.  The DOL issued the final rule to “reduce uncertainty over , promote greater uniformity among court decisions, reduce litigation, and encourage innovation in the economy.”

The new rule, which will become effective in 60 days, is a departure from the prior DOL rule, a legal interpretation adopted by the Obama Administration in 2016 and a 2015 ruling by the National Labor Relations Board (NLRB) that expanded joint employment situations and made it easier for workers to sue their employers. This rule will make it more difficult for employees to sue multiple employers for wage violations.

 

The Old Rule

The DOL has not meaningfully revised the FLSA’s joint employer regulation since 1958. This new rule replaces the “not completely disassociated” joint employer standard under 29 C.F.R. Part 79. As a bit of background, the DOL has long recognized that two or more entities may sometimes “jointly” employ – and be liable regarding – a single employee under the FLSA. Under the DOL’s prior regulations, multiple entities could be joint employers of an employee if they were “not completely disassociated” with respect to the employee’s employment.

In an effort to interpret the DOL’s “not completely disassociated” standard, federal courts around the country have developed several different multi-factor tests for evaluating joint-employment claims under the FLSA. Some courts asked whether an employee is “economically dependent” upon an alleged joint employer, while other courts focused on the relationship between the two alleged joint employers. The result of these differing tests is that companies operating in multiple jurisdictions may face joint-employer liability in one jurisdiction, but not in another, for the same business practices.

The New Rule

In place of the “not completely disassociated” standard, the final rule adopts the four-factor balancing test derived from the Ninth Circuit’s decision in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). The test shifts focus from a potential joint employer’s right to control, and instead examines the potential joint employer’s actual exercise of control over the terms and conditions of an employee’s work. The four factors consider whether the potential joint employer:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the employee’s employment record.

No single factor is dispositive for determining joint employer status, and the appropriate weight given to each factor will vary depending on the circumstances. Additional factors may be relevant to determine whether the potential joint employer is “[e]xercising significant control over the terms and conditions of the employee’s work.”

Under the final rule, an entity is a joint employer only if that entity is acting directly or indirectly in the interest of the other employer and demonstrates an actual exercise of control. Whether an employee is economically dependent on an entity is no longer relevant for determining joint employer liability. Also, the final rule does make clear, that mere maintenance by one company of employment records of another will not, itself, establish joint-employer status. Finally, and perhaps most significant, the new rule expressly provides that the use of the franchise model does not mean that a franchisor is more likely to be the joint employer of its franchisee’s employees.

What This Means for Employers

This new rule makes findings of joint employment more difficult and should reduce potential wage and overtime liability for franchised companies.

About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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