U.S. Department of Labor Adopts Standard for Joint Employment Situations: What Does It Mean for Nonprofits?

5 min

Does your nonprofit utilize a staffing or temp agency, hire consultants and embed them within your workforce, share employees with affiliates or subsidiaries, use an association management company (AMC) or a professional employer organization (PEO) (in whole or in part), or otherwise use outsourced workers for certain tasks? If so, your nonprofit could be facing potential liability for wage violations for employees whom you didn't know you had or even think were yours.

On January 20, 2016, the U.S. Department of Labor's (DOL) Wage and Hour Division released an Administrator's Interpretation addressing what it considers to be a growing concern: joint employment. The DOL's interpretation is significant in two ways. First, the DOL is asking courts to abandon their own standards for joint employment and instead adopt a standard created specifically for agricultural workers, and is doing so without promulgating a new regulation under the federal Fair Labor Standards Act (FLSA). Second, the DOL itself will likely apply this expansive test in its own investigations of potential joint employers.

Joint employment describes a situation where an employee works for more than one employer at the same time. Consider, for example, a nonprofit employer that contracts with a staffing agency to fill a temporary position. While the employee might have been hired and paid by the staffing agency, she might report to management at the nonprofit, have her schedule set by the nonprofit, and wear the nonprofit's insignia on her name badge and/or business card. In this way, she could be an employee of both the staffing agency and the nonprofit employer at the same time.

This is important because under the FLSA, joint employers can be held liable for the wage violations of a secondary or intermediary employer. This means that if a nonprofit employer subcontracts out some of its work, and the subcontractor doesn't pay its employees properly, the nonprofit employer could owe those employees back pay and, potentially, additional liquidated damages and attorneys' fees.

Different courts have different rules regarding what constitutes a joint employment relationship. While it is generally accepted that a court will look at the "economic realities" of the employment situation—i.e., it will attempt to determine the extent to which the employee is dependent on the potential joint employer—the factors that courts consider and how they weigh those factors vary considerably. While the specifics of the current tests differ, they tend to focus on how much control the potential joint employer has over the employee. If an employer exercises more control by, for example, having the power to hire and fire the worker, supervising the worker closely, and determining the worker's pay, it is more likely to be found to be a joint employer and thus to be liable for wage violations.

The DOL's new interpretation seeks to bring unity to the "economic realities" test from an unlikely source—the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The MSPA was enacted specifically to govern farm labor and agricultural contractors. While the MSPA and the FLSA share some traits and definitions, the MSPA has a much more expansive take on the joint employment relationship. The MSPA still considers control a part of the joint employer analysis, but control is only a small part of the MSPA's seven-part test, which, if applied to all employers, examines:

  1. Whether the employer has the power, either alone or through a contractor, to direct, control, or supervise the worker(s) or the work performed;
  2. Whether the employer has the power, directly or indirectly, to hire or fire, modify the employment conditions of, or determine the pay rates or the methods of wage payment for, the worker(s);
  3. The degree of permanency and duration of the relationship of the parties;
  4. The extent to which the services rendered by the worker(s) are repetitive, rote tasks requiring skills that are acquired with relatively little training;
  5. Whether the activities performed by the worker(s) are an integral part of the overall business operation of the employer;
  6. Whether the work is performed on the employer's premises, rather than on premises owned or controlled by another business entity; and
  7. Whether the employer undertakes responsibilities in relation to the worker(s) that are commonly performed by employers, such as preparing and/or making payroll records, preparing and/or issuing paychecks, paying FICA taxes, providing workers' compensation insurance, or providing equipment or materials required for the job.

Compared to many courts' current tests, the MSPA regulation focuses much more on the type of work being performed, whether it is being performed on the employer's premises, and the duration of the relationship. The DOL does not explain how or why this test, which was created in the very specific context of farm labor, applies in other industries. This expansive view of joint employment could be very problematic for employers that outsource work, utilize staffing or temp agencies, embed consultants in their workforce, share employees with subsidiaries or affiliates, or use an AMC or PEO in any way.

Time will tell whether courts will adopt the DOL's broad view of the joint employer relationship. But right now, this opinion tells us that the DOL is looking very closely at employers' staffing practices. Employers must be very conscientious about who is performing their work, how their subcontracting relationships are structured, and how those workers are compensated and managed.