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Final Rule Issued by US Department of Labor Clarifying Joint Employment under the Fair Labor Standards Act

    Pennsylvania Labor & Employment Blog

    Final Rule Issued by US Department of Labor Clarifying Joint Employment under the Fair Labor Standards Act

    By Ursula Siverling on 

    POSTED IN EMPLOYER LIABILITYWORKPLACE TRENDS

    As a follow up to its Notice of Proposed Rulemaking issued in April 2019, the US Department of Labor (DOL) announced on January 12, 2020, the issuance of a Final Rule to revise and clarify the standard for joint employment status under the Fair Labor Standards Act (FLSA). The DOL explained that the Final Rule was necessary because the circuit courts were using a variety of tests to determine joint employer status which has resulted in inconsistent findings, confusion for employers and employees and increased litigation costs for employers.

    The Final Rule adopts the four-factor balancing test from Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983) for determining joint employer status in situations where another individual benefits from an employee’s work. The DOL is of the opinion that the Bonnette test follows the “any person acting directly or indirectly in the interest of an employer in relation to an employee” language included in the FLSA’s definition of “employer.”

    Under the four-factor test, where an employee performs work for an employer and another individual benefits from that work, the other individual will be considered a joint employer when found to be directly or indirectly controlling the employee. Direct or indirect control is established when the potential joint employer applies one or more of the following “control” factors, the ability to:

    • Hire or fire the employee;
    • Supervise and control the employee’s work schedule or conditions of employment to a substantial degree;
    • Determine the employee’s rate and method of payment; and
    • Maintain the employee’s employment records.

    The Final Rule establishes that no single factor will be determinative in the joint employer analysis and the weight given to any single factor will depend on the specific factual scenario. Additionally, an employee’s economic dependence on a potential joint employer alone will not determine the existence of joint employer status. The Final Rule also acknowledges that other factors may come into play when determining a joint employer relationship but only if they establish that the potential joint employer exercises significant control over the employee. The DOL specifically discussed several factual scenarios that will not be controlling in the joint employer analysis, including the following:

    • The potential joint employer’s practice of sharing resources and/or benefits such as handbooks or other policy forms, allowing the employer to operate a business on its premises, offering an association health plan or retirement plan to the employer or participating in such plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.
    • Operating as a franchisor, entering into a brand and supply agreement, or using a similar business model;
    • The potential joint employer’s requirement that the employer comply with all legal, health and safety obligations;
    • The potential joint employer’s agreement with the employer regarding quality control standards to ensure the consistent quality of the work product, brand, and/or business reputation.

    Finally, to assist employers in understanding the new analysis, the Final Rule provides a number of illustrative examples which apply the new analysis to various factual scenarios. The Final Rule is expected to be effective on March 6, 2020. We recommend that employers use this time to review any relationships with individuals who are not directly employed by them but from whom they receive beneficial services to determine if a potential joint employer relationship exists.