DOL weighs in on joint employer test

By Lillian Hartgrove, State Board of Education Chairman
Special to the UCBJ

The U.S. Department of Labor (“DOL”) recently issued interpretive guidance regarding how it would analyze joint employer status under the Fair Labor Standards Act (“Act”).  The guidance is not a formal regulation but does provide insight into how the DOL will analyze this subject.

The guidance recognizes two joint employer scenarios.  The first is the one more commonly considered, where one employer employs the employee to work and another employer simultaneously benefits from that work.  The stereotypical example is a person employed by a temporary employment service who is assigned to work for a client company of the employment service.

The guidance sets out four factors that will be analyzed when determining whether the other person or employer will be considered a joint employer (hereafter the term “other employer” will refer to the employer being analyzed to determine whether or not it is a joint employer).  The first factor is whether the other employer hires or fires the employee.  That is an obvious form of control over conditions of employment.

The second factor is whether the other employer supervises and controls the schedule or conditions of employment “to a substantial degree”.  An employer who determines when an employee will arrive and depart, and precisely what the employee will do during the day, certainly exercises a significant degree of control over the employee’s conditions of employment.

The third factor is whether the other employer determines the employee’s pay and method of payment.  Generally, the other employer will not do this directly.  Presumably an arrangement whereby the other employer pays an amount to the primary employer, and the primary employer determines the wage will not be found to favor joint employer status.  But that is not entirely clear from the text of the guidance.

The fourth factor is whether the other employer maintains the employee’s employment records.  Such records include payroll records, work schedules and other records that relate to the hiring, firing supervision and control of the employee. 

Perhaps just as importantly, the guidance provides examples of matters that will not make joint employer status more or less likely.  With respect to records, maintaining records of information which shows compliance with legal obligations or health and safety standards, or quality control standards required by contract, do not make joint employer status more or less likely.  

The potential ability to exercise control over terms and conditions of employment is not sufficient.  The other employer “must actually exercise – directly or indirectly” one or more of the four factors to be found a joint employer.  In this regard, indirect control is demonstrated when the other employer provides mandatory direction that directly controls the employee.  An employer’s decision to accept a suggestion or recommendation does not satisfy this standard.  Nor do actions with only incidental impact on employees indicate joint employer status.

An employee’s economic dependence on the other employer is not a relevant factor.  This statement is significant because some authorities had used this factor in their analysis and it can often be used to argue in favor of joint employment status.

Significantly, the guidance provides, “Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model does not make joint employer status more likely under the Act.”  This is a clear signal that the DOL does not intend to make the argument attempted by the General Counsel of the National Labor Relations Board (“NLRB”) in several cases brought against McDonald’s and franchisors.

Allowing the other employer to work on-site (such as “store within a store” arrangements for example), allowing participation in association health plans or association retirement plans, or jointly participating in an apprenticeship or similar practices does not make joint employer status more or less likely under the Act.

The guidance describes the second joint employer circumstance as where one employer employs an employee for a number of hours in a workweek, and a second employer employs the same employee to work other hours in the same workweek.  In this scenario if the employers “are acting independently of each other and are disassociated with respect to the employment of the employee” then neither employer is required to consider hours worked for the other when determining compliance under the Act.  On the other hand, if the two employers are “sufficiently associated with respect to the employment of the employee” they are joint employers.  As such, they “must aggregate the hours worked for each for purposes of determining compliance with the Act.”

This begs the question of how one knows if the two employers are “sufficiently associated”?  The guidance provides some examples.  Typically there is sufficient association where: (1) there is an arrangement between the two employers to share the employee’s services; (2) one of the employers acts directly or indirectly in the interest of the other; or (3) they share control of the employee because one employer controls, or is under common control with, the other.  

Why all the fuss over joint employer status?  A recent settlement in an NLRB case provides a hint.  On Jan. 10, 2020, the NLRB announced settlement of a case brought against CNN.  The NLRB brought a case alleging that CNN was a successor to and joint employer with Team Video Services, and that CNN had unlawfully canceled a contract with Team Video Services.  (Successorship is another article for another day.)

The case proceeded to the Court of Appeals for the D.C. Circuit, which affirmed part of the decision and remanded other aspects.  Issued to be addressed on remand included the Board’s finding on joint employer status and issues of back pay.

The Board did not have to issue a new decision after remand.  Instead the parties settled via CNN’s agreement to pay $76 million in back pay which is expected to benefit over 300 persons.

A wise employer can go a long way toward avoiding the risk and expense of such scenarios by addressing liability issues in contracts with other businesses, and engaging in a proper analysis of the issue when structuring arrangements with its business partners and constituents.

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