The U.S. Department of Labor’s Wage & Hour Division (WHD) yesterday announced its final rule on joint employment under the Fair Labor Standards Act (FLSA), one of several highly-anticipated regulations in the area of labor and employment law, which will be formally published on January 16.
The WHD joint employer rule addresses an issue that became noticeably more contentious during the Obama administration, when the agency’s director, David Weil, spearheaded an effort among various agencies to broaden the scope of what defines joint employment. Under Weil’s tenure, the WHD and the National Labor Relations Board (NLRB) in particular set about revamping their interpretation of the law based on Weil’s theory espoused in a book he wrote called The Fissured Workplace.
That theory asserted, in short, that employers were taking advantage of various legal structures, such as franchising and contracting, to shirk their responsibilities to workers over whom they had some measure of economic impact. To counteract those practices, one of Weil’s solutions was to redefine joint employment so that a secondary employer could be held liable for the employees of another, whether or not it actually exercised any meaningful control over their terms and conditions of employment. Weil’s theories led to an ill-considered Administrator’s Interpretation (AI) from the WHD as well as the 2015 Browning Ferris decision from the NLRB. Under President Trump, the Department of Labor withdrew the AI, and the new rulemaking follows up on that by clarifying the factors that will be evaluated in determining whether a joint employment relationship exists.
As described by the WHD, the final rule:
“specifies that when an employee performs work for the employer that simultaneously benefits another person, that person will be considered a joint employer when that person is acting directly or indirectly in the interest of the employer in relation to the employee;
“provides a four-factor balancing test to determine when a person is acting directly or indirectly in the interest of an employer in relation to the employee;
“clarifies that an employee’s ‘economic dependence’ on a potential joint employer does not determine whether it is a joint employer under the FLSA;
“specifies that an employer’s franchisor, brand and supply, or similar business model and certain contractual agreements or business practices do not make joint employer status under the FLSA more or less likely; and
“provides several examples applying the Department’s guidance for determining FLSA joint employer status in a variety of different factual situations.”
The final rule’s four-factor “balancing test” test evaluates whether or not a putative joint employer “hires or fire 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.” The final rule also lays out other potential factors that could also be evaluated to determine joint employment.
The Department’s announcement has been long awaited by the business community. This welcome news should help diminish the confusion caused by Mr. Weil’s unwieldy theory.