Navigating the Fissured Workplace: New Guidance from the DOL on Joint Employment

January 29, 2016
Elizabeth Stork

Last Wednesday, the Department of Labor issued guidance to clarify employees’ rights and employers’ obligations in an increasingly fragmented workplace. The Department of Labor Administrator’s Interpretation (AI) No. 2016-1

addresses Joint employment under the Fair Labor Standards Act (FLSA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

As the AI emphasizes, the Fair Labor Standards Act was designed to cover a wide swath of employment relationships, including the increasingly common phenomenon of joint employment.  The definition of employ under the FLSA and the MSPA–“to suffer or permit to work”–has been called “the broadest definition that has ever been included in any one act.”  United States v. Rosenwasser, 323 U.S. 360, 363 n.3 (1945).  That expansive definition was originally adopted in state laws combatting child labor, to prevent employers from using middlemen to employ child laborers and escape liability.

Enforcement agencies today are confronting a new obstacle to employer liability:  the “fissured workplace,” in which businesses increasingly use third parties, like staffing agencies, to meet their labor needs.  As a result, employees are unsure who controls their working conditions, and employers with the power to make meaningful policy changes and ensure compliance with labor and employment laws may be insulated from liability.

To address the problem, the AI sets out two models for assessing joint employment relationships.  In horizontal joint employment, two employers can be liable under the FLSA or MPSA where they are sufficiently associated with or related to each other with respect to the employee.  29 C.F.R. 791.2.  The test for horizontal joint employment focuses on the relationship between two employers that already have an explicit employment relationship with the employee, such as two restaurants operating under common ownership, using the same managers to schedule the same pool of employees for work at both restaurants.  The following factors, though not a necessary or exhaustive list, weigh in favor of horizontal joint employment:

•    Common ownership
•    Overlapping officers, directors, executives or managers
•    Shared control over operations such as hiring, firing, payroll, advertising and overhead costs
•    Intermingled operations (e.g., the same person schedules and pays the employees regardless of which employer they work for)
•    One employer supervises the work of the other
•    Employers share supervisory authority for the employee
•    Employers treat the employees as a pool available to both of them
•    Employers share clients or customers
•    Agreements between the employers are indicative of joint employment.

If two employers are found to be joint employers under the FLSA, they will be jointly and severally liable for minimum wage and overtime pay obligations under the law, and employees can aggregate their hours across both employers in a given workweek for the purpose of calculating overtime.

By contrast with the horizontal test, which focuses on the relationship of two (or more) employers to each other, vertical joint employment examines the economic realities of the relationship between the employee and the potential joint employer.  This analysis applies where the employee has an established employment relationship with an intermediary, such as a staffing company supplying housekeeping services for a hotel, but may be economically dependent on an other joint employer–e.g., the hotel.  Factors probative of vertical joint employment are:

•    Directing, controlling, or supervising the work performed (either directly or indirectly)
•    Controlling employment conditions (either directly or indirectly)
•    Permanency and duration of the relationship (in the context of the industry at issue)
•    Repetitive and rote nature of the work
•    Employee’s work is integral to the business
•    Work is performed on premises owned or controlled by potential joint employer
•    Joint employer performs administrative functions (such as handling payroll, providing necessary facilities and safety equipment, etc.) commonly performed by employers 

In emphasizing the relevance of indirect control over the work performed, the AI is aligned with the National Labor Relations Board’s (NLRB) recent change to the joint employment test under the National Labor Relations Act (NLRA).  Last year, in Browning Ferris Industries, 362 NLRB No. 186 (2015), the Board rejected limitations on the joint employment analysis it had used for the past thirty years, and held that joint employment under the NLRA includes situations where a joint employer possesses or exercises indirect control or authority over employees’ working conditions.  

The question now is how these joint employment tests will apply to franchises.  The NLRB has filed 13 complaints against McDonald’s for labor violations, including coercive conduct in response to union activities at their restaurants, hoping to bring McDonald’s USA, LLC to the table with its franchisees as joint employers.  Franchised businesses like McDonald’s argue that their control over franchisees is limited to preserving their brand should not subject them to liability for employees’ working conditions.

On the same day that the DOL issued its Joint Employment AI, a federal judge in Chicago ordered McDonald’s to turn over to the NLRB information relevant to the joint employment inquiry, including information about the franchises’ hiring and training policies, wages, benefits, scheduling, staffing, promotions, and methods used to review franchises’ operations.  Outten & Golden is counsel for plaintiffs in an other action against a franchised restaurant chain, Jimmy Johns, where the status of the Jimmy Johns’s franchisor as a joint employer under the FLSA is a key issue in the case.

(*Prior results do not guarantee a similar outcome.)