The Department of Labor and National Labor Relations Board jointly issued final rules in March 2020 clarifying the definition of 'joint employer,' establishing a narrower four-factor test under the FLSA. The rules provided greater certainty for businesses using staffing arrangements, independent contractors, or franchise relationships by limiting shared liability. This development carried direct implications for insurance brokerage firms managing complex employment structures.
Since the start of the year, the Department of Labor (DOL) and the National Labor Relations Board (NLRB) have been hard at work to finalize their regulations clarifying the scenarios under which a company may qualify as a “joint employer” (i.e., when one employer may be legally responsible for another company’s employee) under labor and employment laws.
In January, DOL’s final rule—which is scheduled to go into effect on March 16, 2020—codified a four-part balancing test to determine whether a company qualifies as a “joint employer” under the Fair Labor Standards Act and is therefore liable for paying minimum wage or overtime. The test requires consideration of whether the potential joint employer:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
The above list is not exclusive, all factors need not be met, and the weight given to each factor will vary depending on the circumstances. In fact, DOL also identifies several factors that are affirmatively irrelevant to the determination of joint employment status or—at the very least—do not make joint employer status more likely (e.g., whether the employee is economically dependent on the potential joint employer, the potential joint employer’s operating as a franchisor, or the potential joint employer’s practice of providing an employer with a sample employee handbook).
More recently, on February 26, the NLRB released its final rule governing joint-employer status under the National Labor Relations Act. Under the final rule—which is scheduled to go into effect on April 27, 2020—an entity may only be considered a joint employer if they exercise “direct control” over the employees’ essential terms and conditions of employment (e.g., wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction).
The NLRB goes on to explain, however, that while an entity may show:
- Indirect control of essential terms and conditions of employment,
- Contractually reserved but never exercised control or authority over the essential terms and conditions of employment, or
- Control over mandatory subjects of bargaining other than the essential terms and conditions of employment,
- Indirect control of essential terms and conditions of employment,
- Contractually reserved but never exercised control or authority over the essential terms and conditions of employment, or
- Control over mandatory subjects of bargaining other than the essential terms and conditions of employment,
that control can only serve to supplement proof that an entity directly and immediately controls an essential term and condition of employment.
These rules mark the Trump Administration’s most recent efforts to roll back joint employer liability that was expanded under the Obama Administration, and they are likely to be the subject of protracted litigation. In fact, on February 27, a coalition of 18 Democratic state attorneys general filed a lawsuit against DOL, claiming that the agency’s joint employer rule “unlawfully narrow[s] the joint employment standard under the Fair Labor Standards Act, undermine[s] critical workplace protections for the country’s low- and middle-income workers, and lead[s] to increased wage theft and other labor law violations.”
Up next? The Equal Employment Opportunity Commission is reportedly working on a third regulation that would update joint-employer liability for workplace discrimination and harassment.
