March 14, 2016

You Might Be a Joint Employer

The topic of joint employment is certainly in vogue at the moment.  The U.S. Department of Labor is the latest government agency to get in on the action, proclaiming an expansive new interpretation of joint employment.  Specifically, on January 20, 2016, the DOL issued an Administrator Interpretation (AI) providing guidance as to what constitutes joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).  The memo states that joint employment should be defined expansively under these laws.

Joint employment relationships occur when “two or more employers jointly employ an employee” or a group of employees which can potentially result in liability under FLSA or the MSPA, even in situations where the traditional notions of having sufficient control over the workers is absent.  A finding of a joint employer relationship can lead to unexpected results for the nontraditional employer in some important ways.

First, according to the guidance, an employee’s hours worked for all of his or her joint employers are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due.  Under this theory, a non-agricultural worker who works 30 hours for one employer and 30 hours for a “joint employer” during the same week would be entitled to 20 hours of overtime.  In addition, both joint employers could potentially be liable for all of the unpaid wages and penalties due under the FLSA, not just its own proportionate share.


Vertical Joint Employment

The AI describes two types of joint employment relationships.  The first type of joint employment, sometimes referred to as “vertical joint employment,” is common in the farm labor contractor (FLC) context.  In the FLC context, the Wage & Hour Division (WHD) will look at whether a farmworker who works for a farm labor contractor is also employed by the grower.  The vertical joint employment analysis examines the economic realities of the relationship between the farmworker and the grower.  The analysis establishes whether the employees are economically dependent on those potential joint employers and are thus considered their employees.  According to the AI, the FLSA and MSPA require application of the broader economic realities analysis, not a common law control analysis, which has typically been used by the courts to determine vertical joint employment.  In evaluating the economic realities, the DOL states that it will look at the following seven factors related to economic dependence:

•   The extent to which the work performed by the employee is controlled or supervised by the potential joint employer “beyond a reasonable degree of contract performance oversight”;

•   The extent to which the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay;

•   Whether the relationship is indefinite, permanent, full-time, or long-term;

•   Whether the work is repetitive and rote, is relatively unskilled, and/or requires little or no training;

•   Whether the work is integral to the potential joint employer’s business;

•   Whether the work is performed on the potential joint employer’s premises; and

•   The extent to which the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work.


Horizontal Joint Employment

The AI describes another form of joint employment called “horizontal joint employment.” This may occur when an employee is employed by two (or more) technically separate but related or overlapping employers. According to the AI, the horizontal joint employment analysis would apply, for example, when a peach harvester picks produce at two separate orchards and the orchards have an arrangement to share the workers.  In this scenario, there would be an established employment relationship between the harvester and each orchard.  This joint employment analysis focuses on the relationship of the employers to each other.

The AI lists the following questions which may be relevant when determining the degree of association between, and sharing of control by, potential horizontal joint employers:

•   Who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners)?

•   Do the potential joint employers have any overlapping officers, directors, executives or managers?

•   Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)?

•   Are the potential joint employers’ operations intermingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for)?

•   Does one potential joint employer supervise the work of the other?

•   Do the potential joint employers share supervisory authority for the employee?

•   Do the potential joint employers treat the employees as a pool of employees available to both of them?

•   Do the potential joint employers share clients or customers?

•   Are there any agreements between the potential joint employers?

DOL has stated it intends to expand the FLSA’s and MSPA’s statutory coverage to as many employees as possible.  The AI specifically singles out agriculture, as well as several other industries, as those where joint employment is prevalent.


Joint Employer Expansion

Meanwhile, as was noted in this space in the September 2015 issue, the National Labor Relations Board in its Browning-Ferris Industries decision significantly expanded the standard for holding companies liable as “joint employers.”  The NLRB concluded that two entities will be considered joint employers if they “share or codetermine” matters regarding any material terms and conditions of employment.  Moreover, the NLRB will no longer look to determine whether that control is actually being exercised.  Moving forward, “indirect or potential control” over such terms and conditions will be enough in most cases.

Browning-Ferris has appealed the decision with the U.S. Court of Appeals for the D.C. Circuit challenging the NLRB’s decision in its case, including the revised joint-employer standard.  So we won’t know until later this year whether the NLRB’s new test passes judicial muster.

Employers in California have been living under strict joint employer rules since January 1, 2015, when AB 1897 went into effect.  Under AB 1897, liability for any wage-and-hour violations—including all civil and legal penalties—committed by the labor contractor with respect to the workers supplied to the business shifts to the contracting company.  The new law also makes contracting businesses responsible if the labor contractor fails to provide workers’ compensation coverage.  Liability will be imposed regardless of whether the business had knowledge of the purported violations or whether the contracting party implemented sufficient control over the workers.

It should be noted that the DOL’s Administrator’s guidance has not yet been tested in court; it could ultimately get shot down as an overreach by the government.  Also, the guidance should be understood to be limited to imposing joint and several responsibilities for compliance with the FLSA and MSPA only.  It should not be used, for example, for purposes of determining that an employee of one company is eligible to participate in the employee health benefits plan of another company, under a vertical or horizontal joint employment theory.

However, the DOL’s guidance does demonstrate the continuation of a trend of governmental agencies and private attorneys looking to reach into the deep pockets of companies that use contracted labor to secure additional compensation for the contractor’s workers.  Employers should review their contractor relationships and related entity arrangements with qualified employment counsel to analyze whether joint employment exposure is present.