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DOL Proposes Updating FLSA’s Joint Employer Regulations

The Truthful Labor Standards Act (“FLSA”) requires coated employers to pay nonexempt staff no less than the federal minimal wage for all hours worked and extra time wages for all hours worked in excess of 40 hours in a workweek. Since 1939, the Division of Labor (“DOL”) has acknowledged that two or more entities might typically “jointly” employ a single employee and share obligation for that employee’s wages for hours worked for both entity. Nevertheless, the DOL has not formally addressed the circumstances beneath which a “joint employment” relationship exists since 1958.

I. The Present Joint Employer Rule

The DOL’s last official articulation of the usual for identifying a joint employment relationship is codified at 29 C.F.R. § 791.2, a regulation issued greater than 60 years ago. Underneath Section 791.2, the existence of a joint employment relationship is dependent upon whether two entities are appearing “entirely independently of each other” and are “completely disassociated” with respect to the “employment of a particular employee.” When an worker either (a) performs work that simultaneously advantages two or extra employers or (b) works for two or more employers at totally different occasions through the workweek, Section 791.2 states that a joint employment relationship “generally” exists if:

  1. The employers have an association to share the employee’s providers;

  2. One employer is appearing immediately or not directly within the interest of the opposite employer; or

  3. The employers immediately or indirectly “share control of the employee,” because one employer controls, is controlled by, or is underneath widespread control with the other employer.

II. Issues with the Present Joint Employer Rule

Sadly, the prevailing rule’s concentrate on whether or not entities are “completely disassociated” rule has not produced a coherent check for distinguishing separate employment from joint employment. As an alternative, employers have been left with what one federal district courtroom described as a “dizzying world of multi-factor tests,” ranging from the Ninth Circuit’s four-factor check in Bonnette v. California Health & Welfare Company to the Second Circuit’s 10-factor check in Zheng v. Liberty Apparel Co. Including to this confusion, a 2017 determination by Fourth Circuit in Salinas v. Business Interiors Inc. common a completely new check for figuring out joint employment relationships and criticized the varied joint employment checks other federal courts had developed for focusing too much on the “economic realities” between a employee and an alleged employer than on the relationship between the alleged joint employers.

In consequence, corporations working in multiple jurisdictions confronted the danger of being subject to joint employer liability in a single jurisdiction, however not in one other, for the same enterprise practices.

III. The DOL’s Proposed Revisions to the Joint Employer Rule

In its assessment of Part 791.2, the DOL acknowledged that the myriad joint employment checks federal courts have developed within the six many years because the DOL promulgated Section 791.2 has left employers with vital uncertainty, notably once they do business in multiple jurisdictions. The DOL also decided that the “not completely disassociated” language in Part 791.2 doesn’t present enough steerage for courts in all situations the place joint employment relationships might arise. Indeed, the DOL concluded that the “not completely disassociated” commonplace might incorrectly recommend that relationships between franchisors and franchisees, contractors and subcontractors, and staffing businesses and their shoppers all the time create joint employer relationships.

Hoping to elucidate the statutory foundation for joint employer legal responsibility underneath the FLSA, present steerage to foster uniform requirements throughout the federal courts, and to advertise innovation and certainty in business relationships, the DOL’s Notice of Proposed Rulemaking proposes to revise Part 791.2 to raised articulate which forms of enterprise practices are more likely to lead to joint employer legal responsibility.

A. A 4-Issue Check for Businesses that “Simultaneously Benefit” from a Single Worker’s Work

As a preliminary matter, the DOL proposes to make clear Section 791.2 to determine two situations which will give rise to a joint employment relationship. In the first state of affairs, one business employs a employee for one set of hours in a workweek and one other enterprise employs the identical worker for a separate set of hours in the same workweek. Within the second state of affairs, one enterprise employs a worker throughout a workweek, however one other enterprise simultaneously advantages from that work.

Beneath the DOL’s proposed revision to Section 791.2, the “not completely disassociated” commonplace would stay the usual for figuring out joint employer legal responsibility beneath the first state of affairs. With respect to second state of affairs—which encompasses franchisor-franchisee, contractor-subcontractor, and comparable enterprise relationships—the DOL’s revision to Part 791.2 would remove the “not completely disassociated” normal and exchange it with a “four-factor balancing test” that examines which enterprise:

  1. Hires or fires the worker;

  2. Supervises and controls the employee’s work schedule or circumstances of employment;

  3. Determines the employee’s fee of pay and technique of cost; and

  4. Maintains the worker’s employment data.

B. Clarifications concerning the Circumstances that Create Joint Employment Legal responsibility

No single issue can be dispositive underneath the DOL’s four-factor check, and the standard for figuring out whether or not joint employment exists would stay dependent on the particular details of each case. Nevertheless, the DOL’s revision to Section 791.2 would make several essential clarifications and modifications to the joint employer normal.

1. The Definition of an Employer Would Concentrate on the “Actual” Train of Control over a Specific Worker

Section 791.2 would particularly state that a person must truly exercise, both instantly or not directly, one or more of the four “indicia of control” listed in the four-factor balancing check to be jointly liable as an employer underneath the FLSA. In a marked departure from the checks developed by most federal courts, the revised Part 791.2 would expressly declare the “ability, power, or reserved contractual right” to take action in relation to the worker irrelevant to determining liability as a joint employer. Within the DOL’s view, emphasis on the “actual exercise” of power is most according to 29 U.S.C. § 203(d), which defines an “employer” beneath the FLSA as a person “acting” in relation to an employee.

2. A Employee’s “Economic Dependence” on a Firm Would Not be Relevant to the Joint Employer Analysis

Although the revised Section 791.2 would acknowledge the potential for elements aside from those within the DOL’s four-factor check being related to identifying a joint employer relationship, the revised regulation would state that other elements ought to be thought-about solely insofar as they indicate whether or not a potential joint employer is exercising “significant control over the terms and conditions of the employee’s work” or is instantly or indirectly “acting” within the interest of the other employer in relation to the employee at difficulty. Apparently agreeing with the Fourth Circuit’s criticism of varied joint employment checks in Salinas, the revised Section 791.2 would state that an worker’s “economic dependence” on a possible joint employer is irrelevant to deciding if a joint employer relationship exists. To that finish, the revised Section 791.2 would offer a non-exhaustive record of “economic dependence” elements that the DOL considers irrelevant to the joint employer evaluation.

3. No Specific “Business Model” Would Make Joint Employer Liability More or Much less Probably

As revised by the DOL, Section 791.2 would particularly state an entity’s “business model” (e.g., operating as a franchisor) does not make joint employer standing “more or less likely” beneath the FLSA. In line with the DOL, this language is meant to obviate “unnecessary confusion and uncertainty” which will come up from Section 791.2’s current silence on this level and to mirror the DOL’s “longstanding” place that it is an entity’s “acting … in relation to” an employee, and not its determination to operate as a franchisor or to utilize subcontractors, that determines legal responsibility as a joint employer.

4. Numerous Business Practices Can be Identified as Not Making Joint Employer Status Extra or Much less Doubtless

Section 791.2 would determine specific business practices that do not make joint employer standing kind of probably underneath the FLSA. These practices would include offering a pattern employee handbook, or other varieties, to an employer; allowing an employer to function a business on its premises (e.g., a “store within a store” association); providing an affiliation health plan or association retirement plan to the employer or collaborating in such a plan with the employer; collectively collaborating in an apprenticeship program with the employer; or requiring an employer, as a part of a business contract, to institute workplace security practices, a wage flooring, or sexual harassment policies. This clarification is meant to advertise “fairness, certainty, and innovation in business relationships.”

5. Software of the Joint Employer Check to Particular Situations Can be Offered as Steerage

In a transfer that is more likely to be appreciated by many employers looking for steerage about their potential legal responsibility as a joint employer, the DOL’s revision to part 791.2 would add several examples of enterprise relationships that do and do not represent joint employment relationships beneath the FLSA. These examples would encompass situations the place an employee works for various companies during the same week and conditions where an staff work for one employer concurrently advantages another enterprise.

IV. Conclusion

The DOL’s revision to the FLSA’s “joint employer” laws isn’t yet efficient and continues to be only a “proposed” rule. The proposed rule will remain open for public remark till June 10, 2019.

Notably, the DOL’s rulemaking is a part of part of a larger legislative and quasi-legislative development underneath the Trump Administration that includes the House of Representatives passing the Save Local Enterprise Act in 2017 (nonetheless pending within the Senate) and the Nationwide Labor Relations Board’s proposal in September 2018 to update the standard for figuring out joint employer standing underneath the National Labor Relations Act.

If adopted after the general public comment interval, the DOL’s revised joint employer laws ought to be a welcome improvement for many corporations after years of courts and administrative businesses expressing expansive—and typically conflicting—views of when a joint employer relationship exists underneath the FLSA. That will probably be notably true for corporations that use franchise agreements, subcontractors, or short-term staff, because the revised regulation would chop the circumstances underneath which the DOL believes such employers ought to be “jointly” responsible for the wages of the workers of their franchisees, subcontractors, or staffing businesses.

However, businesses which stand to profit from the FLSA’s revised joint employer guidelines have to be aware of two issues. First, while the DOL’s laws underneath the FLSA are usually entitled to vital deference, deference just isn’t automated—courts should first decide that a regulation presents a “permissible” reading of the FLSA. That may be a troublesome normal to challenge, however corporations ought to anticipate vital litigation over the DOL’s revisions if they are adopted. Second, state regulation might impose joint employer requirements which might be totally different from, and typically broader than, the check that the DOL is proposing for the FLSA. The California Supreme Courtroom, for example, specifically said in Martinez v. Combs that California’s definition of “employ” is “[i]n no sense … based on federal law.” As an alternative, California courts give attention to whether or not a enterprise has the right to regulate the way and means on numerous elements deemed indicative of a standard regulation employment relationship. Moreover, California Labor Code part 2810.three mechanically makes most corporations who use staff from staffing businesses collectively liable with the staffing company for the cost of those staff’ wages.

Subsequently, even if the DOL’s proposed revision to the FLSA’s joint employer rules do develop into effective, businesses are strongly suggested to consult an lawyer to know how broad the modifications are for a specific location.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.