April 08, 2019

Department of Labor Proposes Makeover for Joint Employer Rule

4 min

A 60-year-old labor rule may soon change. On April 1, 2019, the U.S. Department of Labor (DOL) proposed a new rule that, if adopted, will substantially narrow the definition of a joint employer. The DOL says the rule is necessary to reduce ambiguity in a murky area of the law and clarify which parties may (and may not) be held responsible for violations of the Fair Labor Standards Act (FLSA).

The Current Rule

The FLSA makes joint employers jointly and severally liable for wage-and-hour violations. It is no wonder, then, that employers often strive to avoid being considered a joint employer. The last thing a business wants is responsibility for another employer's wage-and-hour issues.

Under the current joint employer rule, two persons or entities are joint employers if they are not "completely disassociated" with respect to the employment of an employee. Most courts hold that the potential ability to exercise control over an employee will mean that a person or entity is a joint employer. This standard presents issues for a variety of business models, including franchisor-franchisee relationships, portfolio member companies, and business that rely upon staffing agencies, among others.

The Proposed New Rule

The DOL's proposed new joint employer rule seeks to change the current standard. Under the new rule, a person or entity would be considered a joint employer "only if that person is acting directly or indirectly in the interest of the employer in relation to the employee." To answer that question, the DOL has proposed the following four-factor test:

  1. Does the person or entity hire or fire the employee?
  2. Does the person or entity supervise and control the employee's work schedule or conditions of employment?
  3. Does the person or entity determine the employee's rate and method of pay?
  4. Does the person or entity maintain the employee's employment records?
The DOL says no factor is dispositive, and the appropriate weight for each factor will vary, depending upon the circumstances of each case.

One of the biggest changes is the DOL's new stance on the potential ability to exercise control under one of the relevant factors. According to the DOL, the theoretical ability to exercise control under any of the factors will no longer be relevant to the determination of joint employer status. For example, if a company executes a services agreement with a staffing firm, the company's express reservation of rights to dismiss employees provided by the staffing firm will not make the company a joint employer for those employees.

Instead, the company will need to actually exercise its right to dismiss an employee in order to be considered a joint employer under the firing factor.

Other changes include the DOL's comment that a particular business model, such as a franchisee model, will not by itself suggest a joint employment relationship. Examples of employment practices that will not make joint employment more likely under the new rule include:

  • Providing a sample employee handbook to a franchisee
  • Participating in or sponsoring an association health plan or association retirement plan
  • Permitting an employer to operate a business on another employer's promises (e.g., a "store within a store" arrangement)
  • Jointly participating in an apprenticeship program with another employer

The Impact

If adopted, the new rule is expected to substantially narrow the definition of a joint employer and remove confusion about the types of persons or entities that may be held jointly and severally liable for another employer's wage-and-hour violations. Interested parties may submit comments to the proposed new rule within 60 days from official publication of the rule in the Federal Register, which is expected very soon.

All employers should monitor the rulemaking process for whether the new joint employer rule becomes effective. In the event the rule becomes official DOL policy, employers should consider how to modify their business practices in order to bolster the likelihood that they are not considered a joint employer. As always, employers should consult experienced labor and employment counsel for advice about joint employer risk and related strategic decisions.