Department of Labor Issues Guidance on Joint Employment

Earlier this month, the Department of Labor (DOL) Wage and Hour Division released its first major guidance of 2016: an administrator’s interpretation on what constitutes joint employment under the Fair Labor Standards Act (FLSA).

If a joint employment relationship exists, both employers would be jointly and severally liable for FLSA compliance, including payment of overtime compensation for all joint employees covered by the FLSA.

The guidance describes two kinds of joint employment: horizontal and vertical. Horizontal joint employment occurs when “the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.”

In other words, horizontal joint employment focuses on the relationship of the employers to each other. One example of potential horizontal joint employment involves an administrative employee who works for two agencies that have a relationship with one another, such as common ownership, common management, shared control over operations, or agreements between the two agencies.

Vertical joint employment exists when “the employee has an employment relationship with one employer, such as a staffing agency, subcontractor, or professional employer organization and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” In other words, this analysis focuses on the relationship between the employee and the employers.

The guidance effectively broadens the scope of vertical joint employment by rejecting the common law control test, which focuses on the degree to which a business controls an individual’s work. Instead, it focuses on the economic realities test, which determines the degree to which the worker is economically dependent upon their employers.

The interpretation lays out seven factors for determining whether a joint employment relationship exists:

1. Direction, control or supervision of the work performed
2. Control over employment conditions
3. Permanency and duration of the relationship
4. Repetitive and rote nature of the work
5. Integrality to business
6. Work performed on premises
7. Performance of administrative functions commonly performed by employees

This most recent administrator’s interpretation comes as part of an overall push by the Obama Administration to aggressively enforce and interpret federal wage and hour laws. Although it’s not a formal rule, this guidance can play a significant role in litigation regarding unpaid overtime and other labor violations, as well as general FLSA enforcement.

Jennifer Webb is Big “I” federal government affairs counsel.