On January 20, 2016, the DOL issued an Administrative Interpretation elaborating on the concept of “joint employment” for purposes of the FLSA. Joint employment occurs when two separate businesses are treated as the “employer” of a group of employees, and both businesses are liable for complying with applicable employment laws. The DOL recognizes that joint employment is becoming more common, with businesses either sharing employees or using third-party companies (staffing agencies) to provide labor. The January 20th Administrative Interpretation creates two categories for analyzing joint employment: “Horizontal” and “Vertical” joint employment.
"Horizontal joint employment" occurs when the two companies are so intermingled that both are treated as the employer. The focus is on the relationship between the two companies. For example, two separate entities may be treated as the joint employer of a group of employees if they share common ownership and common management (overlap of officers or executives). The DOL also considers whether the two companies share control over operations (hiring, firing or payroll), intermingle their operations, share supervisory authority over employees, share a pool of employees, or share clients.
"Vertical joint employment" occurs where the employee has a relationship with one employer has a relationship with one employer but is economically dependent on another company. The focus is on the relationship "between the individual employee and the potential joint employer." Typically the individual’s established employer has contracted with the potential joint employer to provide it with labor and/or to perform certain functions such as hiring and payroll. When determining whether Vertical joint employment exists, the DOL does not focus exclusively on control (it is not a control test) but looks at the following seven factors:
- Directing, controlling or supervising of the work performed
- Controlling employment conditions (power to hire, fire, or determine pay rate)
- Permanency and duration of relationship
- The work is repetitive and rote, and unskilled (requires little training)
- The work is an integral part of the business
- The work is performed on the premises
- Performing administrative functions for the employee (payroll; insurance; safety equipment; tools; housing)
Staffing agencies, and the relationship they have with their clients, are identified by the DOL as an example of Vertical joint employment. So what does all of this mean for you and your client? As a practical matter, more businesses will be identified as a joint employer and will be liable for complying with the requirements of the FLSA. Clients of staffing agencies may need to consider complying with the FLSA’s recordkeeping requirements which include maintenance of hours worked, wages, and personnel information for each temporary worker assigned to its job site. Do not be surprised if your clients begin to ask you for assistance in acquiring this information.
This interpretation of joint employment only applies to the laws governed by the DOL. It is not intended to provide guidance on “joint employment” as that term is defined under other federal employment laws, including Title VII of the Civil Rights Act of 1967, the National Labor Relations Act (NLRA), or the Family Medical Leave Act (FMLA).