Jan 28, 2016

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On January 20, 2016, the United States Department of Labor (“DOL”) issued “Administrator’s Interpretation No. 2016-1” (“AI”) advising employers that the DOL uses, in its enforcement efforts, a broad definition of “joint employment” that applies in situations which will surprise some employers. The updated definition of “joint employment” is part of the DOL’s efforts to respond to the changing workplace in which:

More and more, businesses are varying organizational and staffing models by . . . sharing employees or using third-party management companies, independent contractors, staffing agencies, or labor providers. As a result, the traditional employment relationship of one employer employing one employee is less prevalent . . . in all industries . . .

The AI states that these changes have “made joint employment more common” requiring DOL guidance “concerning joint employment under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. 201, et seq.” The DOL annually investigates numerous complaints alleging unpaid overtime arising from joint employment and initiates its own investigations into this issue. The DOL recovered more than $83 million in FY2013 for over 108,000 jointly employed workers.

Many employers are familiar with “joint employment” in which two employers share or lease a nonexempt employee, or a staffing agency provides a worker who, by his or her presence in the workplace, is likely to be considered jointly employed by the employer and the staffing agency. The AI labels this “vertical joint employment” which occurs when the worker is “economically dependent” on both the staffing agency and the “intermediary employer [who] receive[s] the benefit of the employee’s labor.” The worker’s economic dependency on both employers is the critical factor in the joint employment analysis.

The AI advances another type of joint employment which is likely to be less familiar to employers. “Horizontal” joint employment occurs when “two (or more) employers” are “sufficiently associated with or related to each other” and “each separately employs an employee.” “[O]ften the employee performs separate work or works separate hours for each employer.” The critical factor in horizontal joint employment is the relationship between the employers as evidenced by an association between the joint employers in which they share control over offices, managers, operations (e.g. joint payroll, human resources or administration) and supervision of employees. Joint employment does not exist when the employers are “independent[] of each other and . . . completely disassociated with respect to an employee who works for both of them.”

Consider, for example, a school district that employs a teacher aid for 30 hours a week. When school ends for the day, the aid works 20 hours a week for a third party that provides an after school program at the school. The after school program operates pursuant to an agreement with the school district in which the superintendent is the contact. The after school program follows school district rules for the use of the building. The aid may be jointly employed by the school district and the after school program because the school district has an agreement with the after school program (a relationship), and the aid is subject to school district rules and supervision by the superintendent during the school day as well as after it (e.g. there is shared supervision over the employee and operations, and shared control over the location). In this example, the school district and the after school program may be deemed “sufficiently associated,” and the aid may be entitled to overtime pay at the time and one half rate for 10 hours each week, even though she doesn’t work full time for either employer. Moreover, the DOL could try to recover the unpaid overtime from the school district or the after school program.   

According to the AI, the FLSA dictates that “joint employment” is “defined expansively . . .” The AI is part of the DOL’s initiative to ensure that the benefits of the FLSA, including overtime pay, are extended to as many employees as possible. “When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the workweek are . . . considered as one employment, including for . . . overtime pay.” Joint employers “are jointly and severally liable for compliance with the FLSA,” including for unpaid wages.

Joint employment is the subject of increased enforcement efforts by the DOL, in part because of the potential recovery of unpaid wages and employment taxes. Employers should take their cue from the AI and, like the DOL, consider the risk that joint employment exists in a broad range of situations. Employers may need to become more aware of the other employment relationships that their nonexempt employees maintain and prospectively address and manage that employment to ensure compliance with the FLSA.