Department of Labor Issues Opinion on Joint Employer Liability

Authored by Jamie M. Westbrook, Karen E. Milner

Jan 28, 2016

The U.S. Department of Labor (DOL) issued an Administrator’s Interpretation outlining two specific types of business relationships that could result in a finding of joint liability for federal wage-and-hour violations.

Interpretation No. 2016-1 describes two specific types of business relationships where the DOL has been and will continue to scrutinize the specific factors in the relationships between the organizations to determine whether a joint employment relationship exists such that the related organizations may be considered joint employers for purposes of the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The interpretation addresses “Horizontal Joint Employment” and “Vertical Joint Employment” relationships.  Horizontal Joint Employment occurs when an employee is employed by two or more technically separate but overlapping employers. A joint employment situation will occur when two or more entities are sufficiently associated with each other that a single employee employed by both entities is considered to be jointly employed by both entities such that the total number of hours worked during a workweek at both employers will be counted to determine if the employee is eligible for overtime pay.

The factors considered in determining whether a horizontal joint employment relationship exists are:

(1) Who owns the potential joint employers;
(2) Do the potential joint employers have overlapping officers, directors, executives or managers;
(3) Do the potential joint employers share control over operations;
(4) Are the potential joint employers’ operations ever inter-mingled;
(5) Does one potential joint employer supervise the work of the other;
(6) Do the potential joint employers share supervisory authority for the employee;
(7) Do the potential joint employers treat the employees as a pool of employees available to both of them;
(8) Do the potential joint employers share clients or customers; and
(9) Are there any agreements between the potential joint employers.

The vertical joint employment inquiry focuses on whether the employee of an intermediary employer is also employed by another employer, which is the potential joint employer. Where there is vertical joint employment, there will likely be a contract or other arrangement between the intermediary employer and potential joint employer.

The factors considered in determining whether a vertical joint employment relationship exists are:

(1) Directing, controlling or supervising the work performed;
(2) Controlling employment conditions;
(3) Permanency of Duration of Relationship;
(4) Repetitive and Rote Nature of Work;
(5) Integral to Business;
(6) Work performed on the premises;
(7) Performing Administrative Functions Commonly Performed by Employers.

This interpretation, along with last summer’s DOL guidance on classifying independent contractors and employees, suggests that the DOL and plaintiff litigants may be more aggressive in finding workers to be employees as opposed to independent contractors and in finding that joint employment relationships exist. Potential consequences include exposing employers to extensive liability for overtime pay, unpaid wages, and penalties for employees not on the employer’s payroll. If a company is found to be a joint employer of its contractor’s employees, each joint employer will be jointly and independently accountable for all wage liability. .

We strongly recommend that employers: (1) conduct an audit to determine whether they are properly classifying workers; and (2) review relationships with associated entities to determine whether any joint employer relationships may exist.

If you have any questions about proper classification of workers, potential joint employment issues, or any other Employment Law matter, please do not hesitate to contact Karen Milner or Jamie Westbrook.

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