As many businesses know, the question of whether someone is a joint employer rarely has a clear answer.
Unfortunately, I am typically the bearer of bad news when it comes to this question, because it is usually posed to me when an employer is faced with the possibility of additional liability stemming from a hypothetical joint-employer relationship.
Well, today is the day that I bring good news to many. The U.S. Department of Labor has finished its work on a rule meant to limit the scope of joint-employment liability for wage and hour matters. This rule promises to usher in a new day for businesses, since it will most likely lead to fewer of them being found by a court or agency to be joint employers when it comes to minimum wage, overtime and similar liability under the Fair Labor Standards Act. Employers should now reexamine their business practices to make the most of the new standard.
4-factor test, in a nutshell
The USDOL’s new rule will make use of a four-factor balancing test to decide if a business is a “joint employer” – equally liable under federal wage and hour laws. It will assess whether an entity: 1, hires or fires employees; 2, supervises and controls, to a substantial degree, employees’ work schedules or conditions of employment; 3, sets employees’ pay rates and methods of payment; and 4, maintains employees’ employment records. The USDOL noted that no single factor will be dispositive in ascertaining joint-employer status and that the appropriate weight to give each factor will vary depending on circumstances. Very little guidance was provided on how the factors should be considered together, leaving these questions to be decided by judges and USDOL investigators. For that reason, each individual factor should be examined fully on its own.
The classic catchall
The four-prong test is not the only test related to joint employers. There is, of course, a catchall provision that states that factors not specifically included in this four-part test may still end up being considered in joint-employment determinations. However, this catchall provision applies only if such unremunerated factors are indicative of whether a possible joint employer exercises “significant control” over the terms and conditions of employees’ work. The proper interpretation of this alternative analysis is yet to be seen, and likely will differ depending upon which judicial circuit considers the test.
Although these new standards are an improvement on the USDOL’s previous guidance on joint employment, some concerns remain.
The new rule, for one, provides little guidance regarding the weight to be given to each of the four factors. The fact that the new standard is a balancing test open to interpretation could lead an aggressive fact-finder to find a particular business circumstance warrants a finding of joint employment, even as another investigator or court might find a similar circumstance could to be the product of a harmless arms-length business relationship.
Regarding the second factor, there are bound to be questions, disagreements and litigation over the question of how “substantial” supervision and control over an employee’s work schedule or conditions of employment needs to be in order to tip the scales toward a finding of joint employment.
The final version of the regulations gives rise to uncertainty because it includes catchall language stating that agencies and courts may, using their discretion, rely on factors not included in the four-factor test. This is worrisome since it increases the risk of abuse.
The new rule will take effect on or about March 16, depending on when the rule is formally published in the Federal Register. Now is the time to work with counsel to determine whether one can adopt business changes that make the most of your ability to take advantage of the new joint-employment standard.