On January 20, 2016, the U.S. Department of Labor Wage and Hour Division issued Administrator’s Interpretation No. 2016-1.  DOL Wage Hr DivThe guidance letter issued by DOL Administrator David Weil provides expansive definitions of joint employment—broader than the common law test, the OSHA test, and the NLRB’s new Browning-Ferris test, ensuring “that the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible.”    Businesses in the construction, staffing, janitorial, warehouse, restaurant, and hospitality industries, as well as any business that provides or uses contract labor, are particularly likely to be impacted by this letter.

While this sounds illogical, under the FLSA, an employee can actually have two employers while performing the same work.  When this happens, both employers have certain duties and obligations to the employee.  The DOL’s interpretive letter addresses two types of joint employment – so-called “horizontal joint employment” and “vertical joint employment.”

Horizontal Joint Employment

Horizontal joint employment focuses on the relationship between two companies where the employee has an employment relationship with two technically separate, but associated or related businesses (for example, two restaurants that share economic ties and have the same managers).  Some factors that may used to consider the degree of association between potential joint employers:

  • Who owns each company
  • Are there overlapping officers, directors, executives, or managers
  • Is there shared control over operations or administration
  • Are operations intermingled
  • Does one supervise the work of the other
  • Is there shared supervisory authority for the employee
  • Are employees treated as a pool of employees available to both of them
  • Are clients or customers shared
  • Are there any agreements between the two companies

The Administrator notes that not all of these factors need not be present for joint employment to exist.  If the employers “are acting entirely independently of each other and are completely disassociated” with respect to an employee who works for both of them, then joint employment does not exist.

Vertical Joint Employment

Vertical joint employment exists when an employee is technically employed by one company, but  is economically dependent on another company associated with the work such as with staffing agencies, subcontractors and other labor providers.  This type of employment focuses on the relationships between the employee and the businesses the employee provides work to.  This analysis looks at the “economic realities” of the relationships. The Administrator lists seven factors for this test:

  • Who directs, controls, or supervises the work
  • Who controls the conditions of employment
  • The permanency and duration of the employment relationship
  • The repetitive and rote nature of the work
  • Whether the employee is integral to the business
  • Where the work is performed—i.e., is it performed on the premises of the potential joint employer
  • Does the potential joint employer perform administrative functions commonly performed by employers (e.g., payroll, workers’ compensation insurance)

Consequences for Employers

So, now what?  Well, if two or more companies are found to be “joint employers” of an employee, then the hours worked are added up and considered collectively for purposes of overtime.  Also a small employer not usually subject to the FLSA due to its size and income, may then meet the required thresholds and need to adjust minimum wage, overtime, etc.  Further, each employer is then liable to the employee under the FLSA for overtime, unpaid wages and the like – without proportion – if one employer can’t pay, the other must.