Rule Changes For Joint Employment Arrangements

Rule Changes For Joint Employment Arrangements

The Fair Labor Standards Act sets out a set of standards for employers, and those standards may change depending on whether you are deemed a joint employer. A joint employer relationship can arise in many situations, such as if you are a contractor with sub-contractors or if you utilize a temp or staffing agency. The Department of Labor narrowed this definition of joint employment under the Trump administration, but the Biden administration has since broadened the definition again. This broader definition may re-classify your employee-employer relationship, and thus create additional obligations between you and your employees.

The Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) lays out requirements for employers that protect the interest of employees. For example, it will lay out requirements such as a minimum wage, overtime pay, record keeping, and youth employment standards.  It also includes applicable labor law definitions: such as the legal definition of an employer and employee.

Joint Employer Status Under the Fair Labor Standards Act

When an individual is employed by two employers, known as joint employers, both employers are required to follow the rules and comply with the regulations of the FLSA. Rules regulating joint employers are not specifically laid out in the FLSA. Instead, those rules are found in accompanying regulations. One of these regulations governing joint employers is 29 C.F.R. part 791.

Historic Rule

Prior to the Trump Administration, joint employment definitions were broad and a bit vague. It did not require the employer to actually exercise control over the employee, but merely that a right to control existed. This means that the employer could find themselves in an employer-employee relationship without exercising any form of control or oversight upon the employee, the mere ability to be able to exercise this oversight was sufficient. This is a very broad definition that led to many relationships being deemed joint employment relationships without employers expecting or realizing they were joint employers.

Trump Administration Rule

Under the Trump Administration, the Department of Labor (DOL) adopted rules and regulations regarding joint employers, as well as created a legal distinction between a “vertical employer” as well as a “horizontal employer”. The vertical joint employment is created when an employee is hired by one employer, but truly reports to another. For example, if an employee is hired by a staffing agency, but they go to work at a tech agency because of the staffing agency. They receive their paychecks from the tech agency and receive their schedule from the tech agency. They are in a vertical employer-employee relationship. Yes, they are hired by the staffing agency, but their day to day is governed by the tech agency, who is receiving the benefit of their labor.

The DOL adopted a four-factor test to determine if the relationship creates a vertical employer-employee relationship. There is a vertical employer-employee relationship if the joint employer: (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) sets the employee’s rate of pay; and (4) maintains employment records. Other factors could be considered only if they indicated whether the employer exercised control of the terms and conditions of the employee’s work. One example of this, is if the employer controls if the employee works from home or in the office, as well as an employee dress code. While these are not specifically included in the test listed above, they would be considered because they indicate the employer exercising control over the employee’s work conditions.

This new rule is a significant deviation from the rule that existed prior to the Trump Administration. Pre-Trump Administration, an employer needed to only have the ability to exercise control over the employee. During the Trump Administration, the employer needed to actually exercise that control over the employee. This narrowed the previous definition.

As previously mentioned, a distinction was made between horizontal and vertical joint employment. In horizontal joint employment, two or more employees employ the same worker for separate hours during the same workweek. To be considered joint employers, the employers must be “sufficiently associated” with respect to the employment of the employee. Conversely, if the employers are not associated with one another in the employment of the employee, they are not considered horizontal joint employers. For example, if an employee is working at a bank during the day and drives for uber on the weekends, the bank and uber are not horizontal joint employers, even though they are both dividing the number of hours worked by an employee in the same work week.

If you are deemed to be horizontal joint employers, the two (or more) employers must aggregate their collective conditions to ensure compliance with the FLSA. For example, if the employee works 25 hours with one employer and 25 hours with another they will need to collectively add up the employees number of hours worked to 50 hours to ensure compliance with FLSA overtime pay and whether they are required to pay overtime, and if so, how much overtime is paid and when it is paid. Additionally, the employers are held jointly liable for any FLSA violations. Horizontal joint employers are often found in construction when deal with subcontractors and assigning tasks on the same job between different subcontractors.

Biden Administration Changes 

The Biden Administration completely rescinded the Trump Administration rules, therefore broadening the interpretation of a joint employer. The DOL has not yet issued a new rule for determining joint employment status, and therefore, courts are applying the rule that existed prior to the Trump Administration. The DOL has not proposed a new rule yet and has not indicated whether they intend to or not.

The Bottom Line

Employers who were not considered joint employers under the Trump Administration rule may need to take another look at their business to determine if they are considered a joint employer under the Biden Administration rules. The Biden Administration returned to a broader definition of joint employers, making it far more likely that you may find yourself in a joint employer role without even realizing it. If you find yourself in a joint employer role, you should consult with your legal counsel to determine what additional obligations, if any, you may now have to your employee.

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