As businesses turn to different organizational structures and models to support staffing needs, the joint employment relationship between employers is expanding and the "typical" business relationship of one employer-one employee is less prevalent. Joint employment exists when an employee is employed by two or more employers. Both employers would be responsible for compliance with employment laws including, but not limited to, minimum wage and overtime protections under the Fair Labor Standards Act (FLSA).
As a result of these evolving employment arrangements, the U.S. Department of Labor (DOL) recently released an Administrative Interpretation (the Guidance) to help employers understand how the DOL evaluates the joint employment relationship. Employers should review their relationships with vendors and service providers and use the DOL's guidance to help determine which relationships might implicate joint employer status.
Below is a quick overview of the DOL's Guidance as to what constitutes a joint employment relationship:
Scope of Definition
The Guidance reiterates the DOL's long-standing position that the scope of employment relationships subject to protections under the FLSA is broad. This is based, in part, on the FLSA's broad definition of "employ," which is "to suffer or permit to work." The DOL maintains that, like "employment," the concept of "joint employment" should be defined just as expansively under the FLSA. The DOL rejects the common law concept of joint employment, which examines the amount of control an employer has over a worker, as too limiting. The Guidance suggests that the DOL will instead focus on whether the worker is economically dependent on the joint employer for work. By ensuring the scope of the joint employment relationship is interpreted as broadly as possible, the DOL will likely strive to ensure that a majority of workers are afforded minimum wage and overtime protections.
Horizontal vs. Vertical Joint Employment
The Guidance focuses on two types of joint employment: horizontal and vertical. Horizontal joint employment exists when two (or more) employers each separately employ an employee and are sufficiently associated with each other with respect to the employee. For example, two health care providers that share staff and common management would be considered closely related enough that the companies must work together to ensure FLSA standards are met for all employees.
Vertical joint employment, on the other hand, focuses on the relationship between an employee and a perceived third party, such that the employee of one employer is also economically dependent on that third party. For example, nurses placed in a hospital by a third-party staffing agency may be "economically dependent" on the hospital. Even though the hospital was not involved in the hiring process, the nurses are dependent on the hospital to make a living; therefore, the hospital may be considered part of a joint employer relationship. In that case, both entities could be liable for FLSA penalties, such as unpaid overtime or failing to meet minimum wage standards.
Common Joint Employment Scenarios
What kinds of businesses are susceptible to a joint employment determination? The short answer is any kind of company, including small and midsized businesses (SMB). For example, an SMB that hires a general contractor to provide a service could be responsible to ensure FLSA compliance standards are met. As noted by Human Resource Executive Online, if a small business hires a general contractor who subcontracts part of their work, and the SMB has day-to-day contact with the subcontractor and inspects the quality of their work, the company will likely be considered a joint employer for the purposes of wage and minimum hour requirements.
The takeaway is that laws regarding joint employment are expanding to protect workers' FLSA rights. As a result, your company may have to take a step back, examine its relationships with third parties and assess the potential risk because, according to the DOL, if you are a joint employer, you and the third party can be found to be responsible for compliance when it comes to laws that protect employees in these relationships. Your best protection is to develop a plan to ensure FLSA and other legal and compliance requirements are met. When in doubt, check with your legal counsel.
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