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Proposed Rule to Clarify Definition of Joint Employment and Joint Employment Liability


The U.S. Department of Labor, Wage-Hour Division, announced today, April 1, 2019, a proposed rule to revise and clarify the responsibilities of employers and joint employers to employees in joint employer arrangements. The Department has not meaningfully revised its joint employer regulation since 1958.

 

Joint employment” and “joint employment liability” is where a worker is employed by different employers but their work benefits both (all) employers simultaneously or the employments are associated in some way or “shared.” When joint employment occurs, all the work hours for all the employers become one job creating overtime liability. The most common and obvious example is when an employer contracts with a temp agency to furnish a worker that is employed by the temp agency but works for the contracting employer. The term “joint employment” and associated liability covers a much broader, less direct, and less obvious set of circumstances creating overtime liability issues in several industries. It has become a significant issue in health care, home health, and allied health care industries where employees frequently work for more than one employer supporting the same patients and consumers. It is also a major issue with the employers and programs serving persons with disabilities with supported employment, job development, case management, respite care, residential care, supervised independent living, consumers in community-based transition employment, and similar support occupations. 

 

We will discuss the current enforcement and the proposed changes with “joint employment” regarding services to persons with disabilities in our upcoming conferences in Cincinnati, OH and Rapid City, SD. We will also discuss the proposed new minimum salary test for salaried exempt workers and the proposed changes to the overtime rule concerning what incentive payments must be included in the regular rate for overtime.

 

The Fair Labor Standards Act allows joint employer situations where an employer and a joint employer are jointly responsible for the employee’s wages. This proposal would ensure that employers and joint employers clearly understand their responsibilities to pay at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 in a workweek.

 

In 2017, the Department withdrew the previous administration’s sub-regulatory guidance regarding joint employer status. That guidance did not go through the rulemaking process that includes public notice and comment. Today’s proposed rule has not yet been published in the Federal Register to set the time table and deadline for public comments. MKAI will notify our clients and subscribers when the proposed rule is published in the Federal Register, expected in the next few days.

 

The Department proposes a clear, four-factor test—based on well-established precedent—that would 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.

The proposal also includes a set of examples for comment that would further help clarify joint employer status. Examples follow:

 

    (1)  Example:  An individual works 30 hours per week as a cook at one restaurant establishment, and 15 hours per week as a cook at a different restaurant establishment affiliated with the same nationwide franchise. These establishments are locally owned and managed by different franchisees that do not coordinate in any way concerning the employee. Are they joint employers of the cook?

    Application:  Under these facts, the restaurant establishments are not joint employers of the cook because they are not associated in any meaningful way concerning the cook’s employment. The similarity of the cook’s work at each restaurant, and the fact that both restaurants are part of the same nationwide franchise, are not relevant to the joint employer analysis, because those facts have no bearing on the question of whether the restaurants are acting directly or indirectly in each other’s interest in relation to the cook.

 

    (2)  Example:  An individual works 30 hours per week as a cook at one restaurant establishment, and 15 hours per week as a cook at a different restaurant establishment owned by the same person. Each week, the restaurants coordinate and set the cook’s schedule of hours at each location, and the cook works interchangeably at both restaurants. The restaurants decided together to pay the cook the same hourly rate. Are they joint employers of the cook?

    Application:  Under these facts, the restaurant establishments are joint employers of the cook because they share common ownership, coordinate the cook’s schedule of hours at the restaurants, and jointly decide the cook’s terms and conditions of employment, such as the pay rate. Because the restaurants are sufficiently associated concerning the cook’s employment, they must aggregate the cook’s hours worked across the two restaurants for purposes of complying with the Act.

 

    (3)  Example:  An office park company hires a janitorial services company to clean the office park building after hours. According to a contractual agreement with the office park and the janitorial company, the office park agrees to pay the janitorial company a fixed fee for these services and reserves the right to supervise the janitorial employees in their performance of those cleaning services. However, office park personnel do not set the janitorial employees’ pay rates or individual schedules and do not in fact supervise the workers’ performance of their work in any way. Is the office park a joint employer of the janitorial employees?

    Application:  Under these facts, the office park is not a joint employer of the janitorial employees because it does not hire or fire the employees, determine their rate or method of payment, or exercise control over their conditions of employment. The office park’s reserved contractual right to control the employee’s conditions of employment does not demonstrate that it is a joint employer.

 

    (4)  Example:  A country club contracts with a landscaping company to maintain its golf course. The contract does not give the country club authority to hire or fire the landscaping company’s employees or to supervise their work on the country club premises. However, in practice a club official oversees the work of employees of the landscaping company by sporadically assigning them tasks throughout each workweek, providing them with periodic instructions during each workday, and keeping intermittent records of their work. Moreover, at the country club’s direction, the landscaping company agrees to terminate an individual worker for failure to follow the club official’s instructions. Is the country club a joint employer of the landscaping employees?

    Application:  Under these facts, the country club is a joint employer of the landscaping employees because the club exercises sufficient control, both direct and indirect, over the terms and conditions of their employment. The country club directly supervises the landscaping employees’ work and determines their schedules on what amounts to a regular basis. This routine control is further established by the fact that the country club indirectly fired one of landscaping employees for not following its directions.

 

    (5)  Example:  A packaging company requests workers on a daily basis from a staffing agency. The packaging company determines each worker’s hourly rate of pay, supervises their work, and uses sophisticated analysis of expected customer demand to continuously adjust the number of workers it requests and the specific hours for each worker, sending workers home depending on workload. Is the packaging company a joint employer of the staffing agency’s employees?

    Application:  Under these facts, the packaging company is a joint employer of the staffing agency’s employees because it exercises sufficient control over their terms and conditions of employment by setting their rate of pay, supervising their work, and controlling their work schedules.

 

    (6)  Example:  An Association, whose membership is subject to certain criteria such as geography or type of business, provides optional group health coverage and an optional pension plan to its members to offer to their employees. Employer B and Employer C both meet the Association’s specified criteria, become members, and provide the Association’s optional group health coverage and pension plan to their respective employees. The employees of both B and C choose to opt in to the health and pension plans. Does the participation of B and C in the Association’s health and pension plans make the Association a joint employer of B’s and C’s employees, or B and C joint employers of each other’s employees?

    Application:  Under these facts, the Association is not a joint employer of B’s or C’s employees, and B and C are not joint employers of each other’s employees. Participation in the Association’s optional plans does not involve any control by the Association, direct or indirect, over B’s or C’s employees. And while B and C independently offer the same plans to their respective employees, there is no indication that B and C are coordinating, directly or indirectly, to control the other’s employees. B and C are therefore not acting directly or indirectly in the interest of the other in relation to any employee.

 

    (7)  Example:  Entity A, a large national company, contracts with multiple other businesses in its supply chain. As a precondition of doing business with A, all contracting businesses must agree to comply with a code of conduct, which includes a minimum hourly wage higher than the federal minimum wage, as well as a promise to comply with all applicable federal, state, and local laws. Employer B contracts with A and signs the code of conduct. Does A qualify as a joint employer of B’s employees?

    Application:  Under these facts, A is not a joint employer of B’s employees. Entity A is not acting directly or indirectly in the interest of B in relation to B’s employees—hiring, firing, maintaining records, or supervising or controlling work schedules or conditions of employment. Nor is A exercising significant control over Employer B’s rate or method of pay—although A requires B to maintain a wage floor, B retains control over how and how much to pay its employees. Finally, because there is no indication that A’s requirement that B commit to comply with all applicable federal, state, and local law exerts any direct or indirect control over B’s employees, this requirement has no bearing on the joint employer analysis.

 

    (8)  Example:  Franchisor A is a global organization representing a hospitality brand with several thousand hotels under franchise agreements. Franchisee B owns one of these hotels and is a licensee of A’s brand. In addition, A provides B with a sample employment application, a sample employee handbook, and other forms and documents for use in operating the franchise. The licensing agreement is an industry-standard document explaining that B is solely responsible for all day-to-day operations, including hiring and firing of employees, setting the rate and method of pay, maintaining records, and supervising and controlling conditions of employment. Is Franchisor A a  joint employer of Franchisee B’s employees?

    Application:  Under these facts, A is not a joint employer of B’s employees. A does not exercise direct or indirect control over B’s employees. Providing samples, forms, and documents doesnot amount to direct or indirect control over B’s employees that would establish joint liability.

 

    (9)  Example:  A retail company owns and operates a large store. The retail company contracts with a cell phone repair company, allowing the repair company to run its business operations inside the building in an open space near one of the building entrances. As part of the arrangement, the retail company requires the repair company to establish a policy of wearing specific shirts and to provide the shirts to its employees that look substantially similar to the shirts worn by employees of the retail company. Additionally, the contract requires the repair company to institute a code of conduct for its employees stating that the employees must act professionally in their interactions with all customers on the premises. Is the retail company a joint employer of the repair company’s employees?

    Application:  Under these facts, the retail company is not a joint employer of the cell phone repair company’s employees. The retail company’s requirement that the repair company provide specific shirts to its employees and establish a policy that its employees to wear those shirts does not, on its own, demonstrate substantial control over the repair company’s employees’ terms and conditions of employment. Moreover, requiring the repair company to institute a code of conduct or allowing the repair company to operate on its premises does not make joint employer status more or less likely under the Act. There is no indication that the retail company hires or fires the repair company’s employees, controls any other terms and conditions of their employment, determines their rate and method of payment, or maintains their employment records.

 

More information about the proposed rule is available at www.dol.gov/whd/flsa/jointemployment2019.

 

Disclaimer: This proposed regulation has been submitted to the Office of the Federal Register (OFR) for publication, and is currently pending placement on public inspection at the OFR and publication in the Federal Register. This version of the proposed regulations may vary slightly from the published document if minor technical or formatting changes are made during the OFR review process. Only the version published in the Federal Register is the official proposed regulation. The Department encourages any interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA26. The public will have 60 days to comment on the proposed regulation; the comment period will begin on the date of publication in the Federal Register.

 

MKAI will notify our clients and subscribers when the proposed rule is published in the Federal Register, expected in the next few days. The above is from a USDOL news release with edits and additional comments for clarification from MKAI.






If you have any questions or would like more information, please contact us at 828-328-9241.