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In new Guidance, DOL gets Aggressive on "Joint Employment"

By issuing a new interpretative document (bearing the catchy title “Administrator’s Interpretation No. 2016-1”), the U.S. Department of Labor's Wage and Hour Division has attempted to clarify the concept of “joint employment” under the Fair Labor Standards Act.  And make no mistake, from an agency enforcement perspective, the joint employer concept has been expanded.

The Basic Concept

Inherent in the concept of joint employment is the recognition that an employee can have two or more employers. The DOL recognizes that businesses use varying staffing models, including temporary labor providers, staffing agencies and management companies. 

Imagine this simple scenario: An orthopedic physicians group engages a physical therapy company to provide services at the group's clinic, and the company's therapists are assigned to work at the office. The physicians group does not track the time of the therapists, does not provide vacation or other benefits, does not process payroll, and does not check the accuracy of the therapists' paychecks. The group does not even schedule individual therapists, other than generally identifying when they want a therapist on site. The physicians group does, however, provide clinical supervision, allow the therapists to work on the clinic premises and issue medical orders. The group also subjects the therapists to its policies when on site (e.g., prohibition of harassment, confidentiality) and reserves the right to remove a therapist from the jobsite in the event of poor performance or conflicts. 

Somewhat amazingly, under the DOL’s new interpretation, the physicians group likely would be responsible for any mistakes in payroll made by the physical therapy company.  

DOL supports its expansive approach to joint employment by referencing the broad definition of employ under the FLSA (“to suffer or permit to work”) and finds further support in the fact that an employer is defined by statute as “any person acting directly or indirectly in the interest of an employer in relation to an employee”.  If those definitions are not clear, the FLSA's definition of "employee" doesn't help either — an employee is defined as “any individual employed by an employer”.  These vague and circular definitions provide the statutory groundwork for the DOL's belief that individuals and entities other than the statutory employer could be a responsible party under the joint employment concept. Of course, in the DOL's words, joint employment under the FLSA also is “notably broader” than the concepts of joint employment under other statutes. 

"Horizontal" vs. "Vertical" Joint Employment

The guidance proceeds to explain analytical frameworks for examining potential joint employment relationships: “horizontal” and “vertical”.  According to the Interpretation, "horizontal joint employment" exists where the employee has two or more employment relationships with employers that have a relationship regarding that purported employee. In other words, the focus is the relationship between the employers: whether the two entities are sufficiently associated with each other with respect to the employee. The best example of joint employers under a horizontal analysis would be two commonly controlled entities that share an employee for portions of a workweek. The hours of such an employee likely would be aggregated for purposes of computing potential overtime exposure.

"Vertical joint employment," on the other hand, exists where the employee has an employment relationship with one employer and the "economic realities" demonstrate that the worker is “economically dependent" upon another entity, which then is the “joint employer”. This analysis requires consideration of several factors: 1) the extent of supervision by the potential joint employer over the work; 2) the extent to which the potential joint employer controls employment conditions and the workplace; 3) the permanency and duration of the relationship with the worker; 4) the nature of the work performed by the worker; 5) whether the worker’s services are an integral part of the potential joint employer’s business; 6) whether the tasks of the worker are performed on the premises of the potential joint employer; and 7) whether the potential joint employer performs certain administrative functions for the worker, such as handling payroll. 

As with any multi-factored analysis, a potential joint employer may satisfy some of the factors of the vertical joint employment test, and not satisfy others. DOL points out that no one factor is controlling, and that the issue of control over the services of the employee is not to be overemphasized. As a result, the existence of the multi-factored analysis creates ambiguity: it is easy to craft conflicting arguments even on an agreed set of facts.

Conclusion: What Next?

The end result of DOL's new Interpretation is that more businesses will likely face exposure for wage an hour violations of workers they didn’t hire, don’t directly supervise, and don’t pay. This will also require potential joint employers to be more vigilant about the wage and hour practices of affiliates, subcontractors, vendors, and business partners. The review and increased use of indemnities in business relationships between employers may become even more commonplace, along with disputes among businesses as to who might be liable, albeit on an indirect basis, for the wage and hour mistakes of a third party. It is debatable whether the approach of the Interpretation will increase compliance. However, one thing is certain — there will be more work for lawyers. 

Questions? Contact Tom Luetkemeyer from Hinshaw's Chicago office (312-704-3056).

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