DOL Issues Proposed Rule on Joint Employment
On April 1, 2019, the U.S. Department of Labor released a Notice of Proposed Rulemaking (NPRM) on joint employment under the Fair Labor Standards Act—the third proposed rule published by the agency in the last two weeks.
No, this is not an April Fool’s joke! After over two years of regulatory inactivity, the DOL’s Wage and Hour Division appears to be rushing to complete its regulatory agenda before the 2020 presidential election season. The DOL published the proposed rule on the minimum salary level for overtime exemptions on March 22 and, on March 28, published the proposed rule on types of compensation that must be included from the overtime calculation. Public comments are due on these two NPRMs on May 21, 2019 and May 28, 2019, respectively. Public comments on the joint employment NPRM most likely will be due in early June—60 days after official publication in the Federal Register.
The NPRM on joint employment proposes to revise the regulations at 29 C.F.R. Part 791, which defines when two companies are considered joint employers of the same employee. The regulations were last revised in 1961, 58 years ago. The proposed rule would replace the January 2016 Administrator’s Interpretation on joint employment, which did not go through the notice-and-comment rulemaking process and was withdrawn in June 2017.
Under the FLSA, companies found to be joint employers are jointly liable for all minimum wage and overtime violations. The statute does not include a definition of joint employment and has left this determination to the courts.
The joint employment issue has become increasingly important since the National Labor Relations Board (NLRB) dramatically expanded the definition during the Obama administration in the Browning Ferris decision, recently partially affirmed but remanded to the NLRB by the D.C. Circuit. The Trump NLRB has undertaken a rulemaking of its own, proposing to narrow the joint employer definition under the National Labor Relations Act, so as to restore the law, essentially, as it stood prior to Browning Ferris. The NLRB is currently poring over thousands of comments filed for and against its proposed rule. A final joint employer rule is expected from that agency by year end.
In its April 1 NPRM, the DOL proposes a four-factor test for determining joint employment under the FLSA. The DOL will consider whether the potential joint employer actually exercises the power to:
- hire or fire the employee;
- supervise and control the employee’s work schedules or conditions of employment;
- determine the employee’s rate and method of payment; and
- maintain the employee’s employment records.
This four-part test originates from the 1983 Ninth Circuit decision in Bonnette v. California Health and Welfare Agency. The proposed regulations would also consider additional factors to determine joint employer status, but only if they are indicative of whether a potential joint employer is exercising significant control over the terms and conditions of the employee’s work or otherwise acting directly or indirectly in the interest of the employer in relation to the employee.
The proposed rule would also clarify factors that are not relevant to the joint employer analysis, most notably explaining that “economic dependence” on the potential joint employer does not determine the potential joint employer’s liability. Other irrelevant factors include, but are not limited to, whether the employee is in a specialty job or a job otherwise requiring special skill, initiative, judgment, or foresight; has the opportunity for profit or loss based on managerial skill; and invests in equipment or materials required for work or the employment of helpers—factors often used to determine whether a worker is an employee or an independent contractor.
Thus, the proposed rule clarifies that the question of whether a worker is an employee at all—the independent contractor inquiry—is separate from the question of who is or are the employers of an employee. This is further clarified by language in the proposal that only the definition of an “employer” in section 3(d) of the FLSA, 29 USC § 203(d), determines joint employer status, not the definition of “employee” in section 3(e)(1) or the definition of “employ” as “to suffer or permit work” in section 3(g) of the Act. 29 USC §§ 203(e)(1), (g).
The FLSA defines “employer” as including “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Thus, the proposed rule does state that indirect action in relation to an employee may establish joint employer status, which may not be welcome news to some employers but is tied to the language of the statute.
Finally, and perhaps most importantly, the DOL’s proposal would add language on the impact of contractual obligations and business models. For example, operating as a franchisor would not make joint employer status more or less likely; nor would requiring a business partner to institute workplace safety measures, wage floors, or sexual harassment policies. Also, providing a sample employee handbook to a franchisee, allowing an employer to operate a facility on one’s premises, jointly participating with an employer in an apprenticeship program, or offering an association health or retirement plan to the employer or participating in such a plan with the employer, would not create joint employer status.
Members of the public can file comments on all three regulatory proposals at www.regulations.com. Search for RIN number 1235-AA20 for the overtime exemption NPRM, 1235-AA24 for the regular rate NPRM, and 1235-AA26 for joint employment. You can also contact the authors with comments on the proposed regulations.
Littler Mendelson P.C.
Federalist Society’s Labor & Employment Law Practice Group