By: Shagun Parekh
The US Department of Labor (DOL) just became the latest federal agency to propose a revised four-factor rule in its attempt to limit the scope of joint employment liability. This comes as a revision to their initial attempt in April 2019 and it is possible that this rule may bring in a new phase in how joint employer liability impacts companies. It is likely that fewer businesses will be deemed joint employers per a court or agency when it comes to minimum wage, overtime, and other Fair Labor Standards Act (FLSA) liabilities.
For employers, now is the time to examine your current business model and revise it as necessary to capitalize on the benefits of this new phase before the rule takes effect on or around March 16, 2020.
The DOL is updating the interpretation of joint employer status under FLSA to promote certainty for employers and employees, reduce litigation, promote greater uniformity in court decisions, and encourage innovation in the economy.
The primary purpose of this rule is to provide guidance on how to determine joint employer status when one employer “suffers, permits, or otherwise employs” an employee to work, and another person or entity also benefits from that work.
Joint Employer Status can be determined by using a four-factor balancing test. The test assesses whether the entity:
- Hires or fires the employee: The DOL has specified that the “hiring or firing” factor does not consider whether an entity has the “power” to hire or fire, but focuses on whether they actually exercise control of that power.
- Substantially supervises and controls: The DOL will look at whether the entity is substantially supervising and controlling the work schedule or conditions of employment for that employee. This factor is not just based on day-to-day supervision, but requires a “substantial” degree of supervision or control.
- Decides employee’s pay and method of receiving pay: The DOL’s third factor will focus on whether the entity determines the rate and method of pay for the employee.
- Maintains records of the employee’s employment: The DOL has confirmed that maintaining employment records alone is not sufficient to satisfy compliance for joint employer status. This factor is not automatically triggered if a potential joint employer only maintains contractual compliance records.
It is important to note that according to the DOL’s rule, no single factor is enough to determine joint employer status. The balancing of the factors will vary depending on the circumstances of each case.
Factors that do not impact Joint Employer Status
In shaping your business model to suit the new standard, it is important to examine the factors which the DOL specifically stated will not be considered when determining joint employer status. They include:
- Unused right to control
- Economic dependence of employee
- Simply enforcing legal obligations on employee
- Maintaining quality control standards
- Allowing a business to operate within the same premises
- Providing access to employee benefits and retirement plans
We expect the DOL to release the final rule soon and we will continue to monitor further developments. For more information, to subscribe to our newsletter, and/or to schedule a consultation with our team, please email us at email@example.com. We encourage you to forward our alerts to your contacts who might benefit from them.