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Department of Labor Proposes Joint Employer Rule

May 16, 2019 Hilary Weddell

Employers have been seeking clarity on joint employer laws for years.  On April 1, the U.S. Department of Labor (USDOL) entered the fray, announcing a proposed rule that would update and amend the joint employment regulations under the Fair Labor Standards Act (FLSA), which has not been revised in more than 60 years.  The rules impact situations in which employers may be held liable for wage and hour violations under the FLSA.  As part of its rule, the USDOL proposes a four-factor balancing test to assess whether there is joint employment.  The four factors ask if the potential joint employer:

  • hires or fires the employee;
  • supervises and controls the employee’s work schedule or conditions of employment;
  • determines the employee’s rate and method of payment; and
  • maintains the employee’s employment records.

With the four-factor test derived from the Ninth Circuit’s decision in Bonnette v. California Health & Welfare Agency (1983) 704 F.2d 1465, the proposed changes are designed, among other things, to ensure certainty for employers and employees, reduce litigation, and promote greater uniformity among court decisions.  If the USDOL rule is adopted, fewer businesses will be found to be a joint employer when it comes to minimum wage, overtime, and similar liability claims under the FLSA.

The USDOL’s announcement is just the latest in the game of joint employer hot potato, one of the most contentious employment issues over the last several years.  In 2015, the National Labor Relations Board (NLRB) issued its controversial Browning-Ferris Industries of California, Inc. (2015) 362 NLRB No. 186 decision, replacing the “direct and immediate” standard with a broader, more ambiguous test.  The Board overturned Browning-Ferris in 2017 with its Hy-Brand Industrial Contractors, Ltd. (2017) 365 NLRB No. 156 decision, which was set aside shortly thereafter.  Currently, the Browning-Ferris standard governs employers.

In addition to the USDOL, the NLRB is attempting to clarify joint-employment status, with the Board’s announcing a proposed rule of its own in September 2018.  The proposed NLRB rule would narrow the current Browning-Ferris standard, focusing on an employer’s control over meaningful and essential terms and conditions of employment, such as day-to-day supervision, hiring, discipline, and firing.  The two rules utilize similar language and demonstrate the overall effort by labor officials to set a clear, high bar for joint employment.  

So what does all this mean for employers?  Right now, not much – although the USDOL’s announcement is certainly welcome news.  Employers should not hastily make changes to their practices in response to the announcement.  Remember, this is still just a proposal; there may be changes – or even legal challenges – before we see a final rule.  If adopted in its current form, this rule would allow businesses to operate with more certainty and clarity when it comes to their wage and hour duties.

Employers should also keep in mind that state law may impose joint employer standards that are different from the proposed USDOL rule.  For example, California has its own set of tests for determining joint-employer liability, which differ depending on the legal issue.

The USDOL is accepting comments on the proposal until June 10.