The Department of Labor Has Spoken: New Joint Employer Liability Rule Becomes Final

In a dramatic departure from the rather flexible standard for joint employer liability embraced under the Obama administration, the Department of Labor has announced a final rule regarding joint employer status under the Fair Labor Standards Act (FLSA) that will surely please employers. It becomes effective in mid-March. The new rule is, in part, a response to the business community’s outcry against prior decisions finding franchisors to be joint employers of their franchisees’ employees, even when those franchisors lacked control over the terms and conditions of workers’ employment.

Four-Factor Balancing Test

In a nutshell, the DOL has adopted a four-factor balancing test to establish whether two or more affiliated businesses jointly employ workers that perform tasks for one company while simultaneously benefiting the other. As finalized, this test weighs whether a potential joint employer:

  1. Hires or fires an aggrieved employee;
  2. Supervises and controls the employee’s work schedules or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the workers' employment records.

Of note, not every one of these factors must be satisfied for a business to be considered a joint employer.

Clearly, the DOL’s new rule is a far cry from the Obama standard, which made it easier for workers to sue their employees by considering a business to be a joint employer not only if it exercised direct control of an employee’s activities, but also if it had "indirect" or even "potential" control. The net effect of the rule as reworked will be to reduce joint employer liability, which is good news for businesses.

The Takeaway

All companies, including yours, should be mindful of joint employer liability because when two businesses are deemed joint employers under the FLSA, they share responsibility for their employees’ wages and can both be deemed legally liable for wage violations. That being said, the DOL’s final rule gives employers more leeway than previous incarnations, is limited to the FLSA, and has no effect on the issue of joint employer liability as it relates to other federal or state employment statutes.

Of course, the labor and employment attorneys at Michelman & Robinson, LLP are here to answer any questions you may have about joint employer liability or, for that matter, any other employment-related issue.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.