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Joint Employers: “Oh, the Staffing Company Pays Them”

Apr 15, 2019
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As part of a recent flurry of rulemaking efforts, the U.S. Department of Labor (“DOL”) recently announced a proposed rule to determine when businesses and other organizations jointly employ workers under the Fair Labor Standards Act (“FLSA”). All employers who utilize staffing agencies or sub-contract work should follow this proposed rulemaking process closely.

Under the FLSA, an employee may have, in addition to his or her primary employer, a second employer, with each entity constituting the employee’s joint employer. Where two entities are deemed to be joint employers, the entities share responsibility for the proper payment of the employee’s wages. For example, an employer who uses a staffing agency could be liable for the staffing company’s failure to properly pay minimum wage and/or overtime to employees if the two businesses qualify as joint employers.

The DOL’s proposed rule outlines a four-factor balancing test to determine whether an organization qualifies as a joint employer under the FLSA. The DOL stated that the four-factor balancing test is designed to make the joint employer analysis “simple, clear-cut, and easy to apply.” The rule asks if the potential joint employer actually has the power to:

  • hire or fire the employee;
  • supervise and control the employee’s work schedules or conditions of employment;
  • determine the employee’s rate and method of payment; and
  • maintain the employee’s employment records.

No single factor above is dispositive. The DOL also included several notable pro-employer comments in the proposed rule. First, the DOL stated that certain business models (e.g., franchises), certain business practices (e.g., allowing an employer to operate a facility on premises), and certain business agreements (e.g., requiring vendors to institute sexual harassment policies), do not make a finding of joint-employer status more or less likely. The DOL also stated that it modified the hiring and firing element to mean that a business’ “reserved contractual right to act with respect to the employee’s terms and conditions of employment” isn’t relevant to whether it is a joint employer. “Only actions taken with respect to the employee’s terms and conditions of employment, rather than the theoretical ability to do so under a contract, are relevant to joint employer status.”

The DOL noted that “additional” factors could be used along with the four-factor balancing test to determine if a joint employment relationship exists when it appears that a potential joint employer is either “exercising significant control” over an employee’s work or “otherwise acting directly or indirectly in the interest of the employer in relation to the employee.” However, the proposed rule states that a worker’s “economic dependence” on a business should not factor into the joint employer analysis.

The DOL offers several examples to add context to the analysis. Here are two of them:

Example 1: A country club contracts with a landscaping company to maintain its golf course. The contract does not give the country club authority to hire or fire the landscaping company’s employees or to supervise their work on the country club premises. However, in practice, a club official oversees the work of employees of the landscaping company by sporadically assigning them tasks throughout each workweek, providing them with periodic instructions during each workday, and keeping intermittent records of their work. Moreover, at the country club’s direction, the landscaping company agrees to terminate an individual worker for failure to follow the club official’s instructions. Is the country club a joint employer of the landscaping employees?

Application: Under these facts, the country club is a joint employer of the landscaping employees because the club exercises sufficient control, both direct and indirect, over the terms and conditions of their employment. The country club directly supervises the landscaping employees’ work and determines their schedules on what amounts to a regular basis. This routine control is further established by the fact that the country club indirectly fired one of the landscaping employees for not following its directions.

Example 2: A packaging company requests workers on a daily basis from a staffing agency. The packaging company determines each worker’s hourly rate of pay, supervises their work, and uses sophisticated analysis of expected customer demand to continuously adjust the number of workers it requests and the specific hours for each worker, sending workers home depending on workload. Is the packaging company a joint employer of the staffing agency’s employees?

Application: Under these facts, the packaging company is a joint employer of the staffing agency’s employees because it exercises sufficient control over their terms and conditions of employment by setting their rate of pay, supervising their work, and controlling their work schedules.

For more examples see, Fact Sheet: Notice of Proposed Rulemaking on Joint Employer Status under the FLSA.

The proposed rule is currently in a period of notice and comment, which will close on June 10, 2019. The DOL has encouraged any interested members of the public to submit comments about the proposed rule electronically online (rulemaking docket RIN 1235-AA26).

While this proposed rule is largely viewed as a benefit for all employers, especially those who utilize the services of staffing agencies or sub-contractors, employers should keep in mind that it is limited to joint employment under the FLSA and does not address joint employment under other federal or state statutes, such as those enforced by the EEOC, Ohio Bureau of Workers’ Compensation and other agencies. If you have any questions regarding your current joint employment status or this proposed rule, please feel free to contact Katie Basch, Travis Teare, or any other K|W|W attorney.