On Jan. 20, 2016, the Wage and Hour Division (WHD), part of the U.S. Department of Labor (DOL), issued an Administrative Interpretation to help employers identify joint employment situations.
Joint employment occurs when an employee works for two or more related employers. When joint employment exists, all joint employers are jointly and severally liable for compliance with applicable laws.
This guidance applies to the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
This guidance signals the WHD’s intention to prevent employers from using intermediaries to shield themselves from FLSA and MSPA liability.
Employers should use this guidance to determine whether they are in joint employment situation. Employers in a joint employment situation should coordinate with each other to ensure compliance with the FLSA and the MSPA.
Broad Definition of “Employment”
The concept of joint employment is possible under the FLSA and the MSPA because these laws have adopted a broad definition of employment—“to suffer or permit to work.” According to the WHD, a broad definition of employment is necessary to ensure that employers do not use “middlemen” to evade their responsibilities under the law.
When joint employment exists, an employee’s hours worked for all of the joint employers during the workweek are aggregated and considered one employment. As a result, that employee’s overtime compensation depends on whether his or her aggregate hours of work exceed the limits set by the FSLA and the MSPA.
In this guidance, the WHD classifies joint employment in two categories—horizontal joint employment and vertical joint employment. The key to determining joint employment under both scenarios is economic dependence, regardless of whether an employer exercised control or supervision over the worker.
Horizontal Joint Employment
Horizontal joint employment exists when a worker is employed by two or more employers that are “sufficiently associated or related.” This means that the employers are technically separate entities but are related or share some administrative or employment functions. For this reason, an analysis of the relationship between the employers is key to determining whether horizontal joint employment exists.
To illustrate, the WHD has offered the following examples:
- An employee is employed at two locations of the same restaurant brand. The two locations are operated by separate legal entities (Employers A and B). The same individual is the majority owner of both Employer A and Employer B. The managers at each restaurant share the employee between the locations and jointly coordinate the scheduling of the employee’s hours. The two employers use the same payroll processor to pay the employee, and they share supervisory authority over the employee. These facts are indicative of joint employment between Employers A and B.
- An employee works at one restaurant (Employer A) in the mornings and at a different restaurant (Employer B) in the afternoons. The owners and managers of each restaurant know that the employee works at both establishments. The establishments do not have an arrangement to share employees or operations, and do not otherwise have any common management or ownership. These facts are not indicative of joint employment between Employers A and B.
Vertical Joint Employment
Potential vertical joint employment situations typically exist when potential joint employers contract with intermediary employers for labor, such as in situations involving staffing agencies, subcontractors and labor providers.
The first step in determining whether vertical joint employment exists is to assess whether the intermediary employer is an “employee” of the potential joint employer. If the intermediary employer is the potential joint employer’s employee, then the intermediary’s employees are also the potential joint employer’s employees, and a joint employment determination is not necessary.
If the intermediary employer is not an employee, determining whether vertical joint employment exists depends on the outcome of an economic realities test. This test shows the degree of economic dependence a worker may have on a potential joint employer. The particular factors used to conduct this test vary from court to court.
The WHD has provided examples to illustrate vertical joint employment:
- A laborer is employed by ABC Drywall Company, which is an independent subcontractor on a construction project. ABC Drywall was engaged by the General Contractor to provide drywall labor for the project. ABC Drywall hired and pays the laborer. The General Contractor provides all of the training, necessary equipment and materials, and workers’ compensation insurance, and is responsible for the health and safety of the laborer (and all of the workers on the project). The General Contractor reserves the right to remove the laborer from the project, controls the laborer’s schedule, and provides assignments on-site, and both ABC Drywall and the General Contractor supervise the laborer. The laborer has been continuously working on the General Contractor’s construction projects, whether through ABC Drywall or another intermediary. These facts are indicative of joint employment of the laborer by the General Contractor.
- A mechanic is employed by Airy AC & Heating Company. The Company has a short-term contract to test and, if necessary, replace the HVAC systems at Condor Condos. The Company hired and pays the mechanic and directs the work, including setting the mechanic’s hours and timeline for completion of the project. For the duration of the project, the mechanic works at the Condos and checks in with the property manager there every morning, but the Company supervises his work. The Company provides the mechanic’s benefits, including workers’ compensation insurance. The Company also provides the mechanic with all the tools and materials needed to complete the project. The mechanic brings this equipment to the project site. These facts are not indicative of joint employment of the mechanic by the Condos.
This Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Contact Kelly Insurance Agency for additional information.
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