For the past several years, the issue of joint employer status has been in a constant state of flux, creating uncertainty for employers. In an effort to clarify this issue, the Department of Labor (“DOL”) issued a proposed rule on April 1, setting forth a four-factor balancing test to determine whether a joint employment relationship exists. These factors include whether the putative joint employer:
- hires or fires the employee;
- supervises and controls the employee’s work schedule and/or conditions of employment;
- determines the employee’s rate and method of payment; and
- maintains the employee’s employment records.
This is great news for employers, as this proposed test narrows the circumstances for when an employer would be considered a joint employer.
Since 2015, when the National Labor Relations Board (“NLRB”) announced its decision in the Hy-Brand Industrial Contractors case, there has been a question of whether the mere right to control the terms and conditions of another company’s employees creates a joint employer relationship. Under this new DOL proposed rule, the putative joint employer must exert actual control over the employees in question, rather than just the theoretical ability to do so under a contract.
Notably, in its proposed rule, the DOL states that a franchise business model does not make joint employer status more or less likely under the Fair Labor Standards Act (“FLSA”). Likewise, certain business practices, such as allowing an employer to operate a store on the company’s premises, or requiring an employer implement certain employment policies or wage practices, does not make joint employer status more or less likely under the FLSA.
The DOL has not meaningfully revised its joint employer regulation since 1958. The DOL notes that the proposed changes are designed to promote certainty for employers and employees, reduce litigation, increase uniformity among the courts, and encourage innovation in the economy.
The DOL’s proposed rule follows shortly after the NLRB’s issued its own similar proposed rule on joint employer status in September 2018. Under the NLRB’s proposed rule, an employer may be found to be a joint-employer of another employer’s employees only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Both of these proposed rules reflect this administration’s desire to limit the scope of the joint employer relationship.
The DOL’s proposed rule is now open for public comment. If a final rule is issued by the DOL, it could provide some much-needed clarity for employers regarding the joint employer test, and end the rollercoaster ride, possibly once and for all.