Department of Labor Issues New Proposed Rule to Clarify Joint Employer Arrangements

By: Lenora Plimpton

On April 1, 2019, the Department of Labor proposed a new “clear, four factor test” to determine joint employer status. If a company is found to be a joint employer under the Fair Labor Standards Act, it is responsible for payment of wages and compliance with the FLSA’s overtime and minimum wage rules for that employee (which can add up to serious liability). Under the proposed rule, courts would evaluate whether the potential joint employer exercises the power to (1) hire or fire the employee; (2) supervise and control the employee’s work schedules or conditions of employment; (3) determine the employee’s rate and method of payment; and (4) maintain the employee’s employment records.

Interestingly, the DOL modified the first factor—the right to hire or fire—to make it more employer-friendly, and wrote that even if there was a “reserved contractual right to act with respect to the employee’s terms and conditions of employment” this “would not be relevant” to joint employer status. Instead, the rule would require the potential joint employer engage in “the actual exercise of power” with respect to the employee’s terms and conditions, rather than merely have a “theoretical ability to do so under a contract.” See “Joint Employer Status Under the Fair Labor Standards Act,” United States Department of Labor, Wage and Hour Division, 29 CFR Part 791 (last visited Apr. 2, 2019).

Although the joint employer regulations have not been significantly changed since 1958, under the Obama administration, wage and hour division leaders had called for—and employed—greater scrutiny of companies who might be joint employers with a stricter eye towards compliance.

Overall, the proposed rule would be positive for employers, making it less likely that an employer will be deemed to be a joint employer over a given employee.

If you have questions about joint employer status and the implications for your business, don’t hesitate to reach out to our employment law team here at Fortis.