From Little Mendelson P.C. Tammy D. McCutchen, Maury Baskin. and Michael J. Lotito discuss the United States Department of Labor’s (DOL) proposed test for determining if a company is a potential joint employer. They write:
In its April 1 NPRM, the DOL proposes a four-factor test for determining joint employment under the FLSA. The DOL will consider whether the potential joint employer actually exercises the power to:
- hire or fire the employee;
- supervise and control the employee’s work schedules or conditions of employment;
- determine the employee’s rate and method of payment; and
- maintain the employee’s employment records.
This four-part test originates from the 1983 Ninth Circuit decision in Bonnette v. California Health and Welfare Agency. The proposed regulations would also consider additional factors to determine joint employer status, but only if they are indicative of whether a potential joint employer is exercising significant control over the terms and conditions of the employee’s work or otherwise acting directly or indirectly in the interest of the employer in relation to the employee.
The proposed rule would also clarify factors that are not relevant to the joint employer analysis, most notably explaining that “economic dependence” on the potential joint employer does not determine the potential joint employer’s liability. Other irrelevant factors include, but are not limited to, whether the employee is in a specialty job or a job otherwise requiring special skill, initiative, judgment, or foresight; has the opportunity for profit or loss based on managerial skill; and invests in equipment or materials required for work or the employment of helpers—factors often used to determine whether a worker is an employee or an independent contractor.
Thus, the proposed rule clarifies that the question of whether a worker is an employee at all—the independent contractor inquiry—is separate from the question of who is or are the employers of an employee. This is further clarified by language in the proposal that only the definition of an “employer” in section 3(d) of the FLSA, 29 USC § 203(d), determines joint employer status, not the definition of “employee” in section 3(e)(1) or the definition of “employ” as “to suffer or permit work” in section 3(g) of the Act. 29 USC §§ 203(e)(1), (g).
The FLSA defines “employer” as including “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Thus, the proposed rule does state that indirect action in relation to an employee may establish joint employer status, which may not be welcome news to some employers but is tied to the language of the statute.
Finally, and perhaps most importantly, the DOL’s proposal would add language on the impact of contractual obligations and business models. For example, operating as a franchisor would not make joint employer status more or less likely; nor would requiring a business partner to institute workplace safety measures, wage floors, or sexual harassment policies. Also, providing a sample employee handbook to a franchisee, allowing an employer to operate a facility on one’s premises, jointly participating with an employer in an apprenticeship program, or offering an association health or retirement plan to the employer or participating in such a plan with the employer, would not create joint employer status.