*UPDATE – THE FINAL RULE WAS RESCINDED JULY 30, 2021 AND IS NO LONGER LAW.
So this is exciting! No, really, it is! As you know, under the Fair Labor Standards Act (FLSA), the employee of one company can be found to be a “joint employee” of another, making both jointly and severally liable for that employee’s wages (and thus, overtime). Historically, whether two companies were “joint employers” was been subject to various balancing tests created by the courts as the Department of Labor (DOL) had not issued a rule on the subject for over 60 years.
However, here’s the fun part! In a final rule issued on January 16, 2020, the DOL articulated a comparatively simple four-part test, effective March 16, 2020. The new test considers whether the claimed joint employer:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
While no one factor is dispositive of the issue, and the weight to be given each factor can vary from one case to the next depending on its facts, the rule clarifies that a joint employer must actually exercise at least one of the four types of control identified by the four factors, and that merely reserving the right to exercise such control, without more, does not suffice. Additionally, the rule explicitly states that a franchisor-franchisee relationship does not impact the joint employer analysis, and lays out a number of examples to assist employers in applying the rule. Cheers to clarity!