Are You a Joint Employer?

Updated on January 29, 2016

On January 20, 2016, the United States Department of Labor (“DOL”) released an “Administrator’s Interpretation” of the Fair Labor Standards Act (“FLSA”) with respect to joint employment.  A week later, on January 27th, the DOL followed up with a “Fact Sheet” on the Family and Medical Leave Act (“FMLA”) on the same. Applying both the FLSA & the FMLA, and pulling together all of the relevant authorities including statutory provisions, regulations, and case law, the DOL is putting all employers on notice-they may be liable as a joint employer for workers, that they may have assumed weren’t even their own.

As the DOL noted, “protecting workers in fissured workplaces-where there is the possibility that more than one employer is benefiting from their work-has been a major focus . . . in recent years.”

The DOL is effectively putting employers on notice-if you benefit from a worker’s work even marginally, you will be held liable as a joint employer for wage and hour violations.

So what is joint employment, how can you figure out if you are a joint employer, and what will be your responsibilities if you are one?

 What is Joint Employment?

The FLSA and the FMLA specifically contemplates joint employers stating that a single worker can be “an employee to two or more workers at the same time.”  This is because the FLSA has a broad definition of “employment” with wide application, which is also adopted by the FMLA-effectively “to suffer or permit to work.”  Therefore, it is possible for two or more employers to jointly employ a worker by benefit of his or her work, and therefore both be responsible, simultaneously, for compliance with wage and hour provisions.

The two most likely scenarios where an employer may be found to be a joint employer are “horizontal joint employment” and “vertical joint employment”:

Horizontal Joint Employment:

Where two (or more) technically separate but related or associated employers employ an employee and benefit from his or her work, including when:

  • The employers have an arrangement to share the employee’s services (e.g. interchange the employee);
  • One employer acts in the interest of the other in relation to the employee; or
  • The employers share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer.

Examples:

  • Two restaurants are organized as two different companies but share operations and share a waitress.
  • A farmworker works for two different growers who have an arrangement to share workers.

Vertical Joint Employment:

Where one employer provides labor to another employer and the workers are economically dependent on both employers.

Examples:

  • Franchisor/Franchisee
  • A staffing agency places a worker at a hotel to do housekeeping.
  • A construction working for a subcontractor under a general contractor.
  • A security company places security personnel with a retail establishment.
  • A private home care agency places an aide in someone’s home.
  • A farmworker working with a contractor for a grower.

Are You a Joint Employer?

Under the FLSA and the FMLA, the DOL specifically rejects the more liberal common law control test which many courts have used, which analyzes whether a worker is an employee based on the employer’s control over the worker, in favor of a broader, economic realities test. This is because the DOL notes that the FLSA’s and the FMLA’s definitions are “comprehensive enough to require its application” to many working relationships which, under the common law control standard, may not be employer-employee relationships.

Test for Horizontal Joint Employment:

You may be liable as a joint employer if any of the following apply:

  • Both companies have common owners or both companies are partially owned by common owners;
  • One company supervises the work of the other company;
  • Both companies share clients;
  • Both companies have common management;
  • Both companies share control over operations (e.g. managing overhead, advertising, managing employees);
  • Both company’s operations are intermingled (e.g. for both companies, the same person supervises, schedules and pays employees, regardless of where they are working);
  • Both companies have a shared pool of employees they both can draw from;
  • Both companies share supervision of the employee;

Test for Vertical Joint Employment:

You may be liable as a joint employer if any of the following apply:

  • You direct, control, or supervise (even indirectly) the employee’s work;
  • You have the power (even indirectly) to hire or fire the employee, change employment conditions, or determine the rate and method of pay;
  • You have a permanent, long-term, or full-time relationship with the employee;
  • You have an employee who performs repetitive work or work requiring little skill;
  • The employee’s work is integral to your business;
  • Is employee is working on your premises;
  • You perform functions for the employee typically performed by employers, such as handling payroll or providing tools, equipment, or workers’ compensation insurance, or, in agriculture, providing housing or transportation.

What Are the Responsibilities of Joint Employers?

The FLSA

Under the FLSA, joint employers (whether horizontal or vertical) are responsible, both jointly and individually, for compliance with wage and hour provisions.  As such, each of the joint employers must ensure:

  • Employees receive all employment-related rights (including payment of at least the federal minimum wage for all hours worked and overtime pay at not less than one and one-half the regular rate of pay for hours worked over 40 in a workweek, unless an exception or exemption applies).
  • Employee hours in a workweek are combined to determine if the employee worked more than 40 hours and is due overtime pay.

The FMLA

Under the FMLA, where a joint employer relationship exits, in most cases one employer will be the primary employer while the other will be the secondary employer. Determining which of the joint employers is a primary or secondary employer depends upon the particular facts of the situation. Factors to consider include:

  • who has authority to hire and fire, and to place or assign work to the employee;
  • who decides how, when, and the amount that the employee is paid; and,
  • who provides the employee’s leave or other employment benefits.

The primary employer is responsible for giving required FMLA notices to its employees, providing FMLA leave, maintaining group health insurance benefits during the leave, and restoring the employee to the same job or an equivalent job upon return from leave. The primary employer is prohibited from interfering with a jointly-employed employee’s exercise of or attempt to exercise his or her FMLA rights, or from firing or discriminating against an employee for opposing a practice that is unlawful under the FMLA. Primary employers must keep all records required by the FMLA with respect to primary employees.

A primary employer must meet all of its obligations under the FMLA even when a secondary employer is not in compliance with the law or does not provide support to the primary employer in meeting these responsibilities.

The secondary employer, whether an FMLA-covered employer or not, is prohibited from interfering with a jointly-employed employee’s exercise of or attempt to exercise his or her FMLA rights, or from firing or discriminating against an employee for opposing a practice that is unlawful under the FMLA.

The secondary employer is responsible in certain circumstances for restoring the employee to the same or equivalent job upon return from FMLA leave, such as when the secondary employer is a client of a placement agency and continues to use the services of the agency and the agency places the employee with that client employer. Secondary employers must keep basic payroll and identifying employee data with respect to any jointly-employed employees.

A covered secondary employer is also responsible for compliance with all the provisions of the FMLA for its regular, permanent workforce.

All employers should carefully evaluate any potential joint employment scenarios now, and seek legal counsel as required, before they incur costly liabilities.