On January 20, 2016, the US Department of Labor (“DOL”) issued an Administrator Interpretation departing from the traditional joint employment tests with the express intent to ensure that “the scope of employment relationships and joint employment under the FLSA … is as broad as possible.” The DOL seeks to address the increasing use of businesses “sharing [so-called “horizontal employment”] or using third-party management companies, independent contractors, staffing agencies, or labor providers [so-called “vertical employment”].”
Employers who share employees should be mindful that the DOL will aggregate hours which can cause overtime claims. Employers who use third party labor sources should ensure those sources are in compliance with wage and hour laws as the DOL may prosecute the end employer as well as the noncompliant staffing agency.
Horizontal Joint Employment
The horizontal joint employment analysis focuses on the relationship between the two potential joint employers. To determine whether a horizontal joint employment relationship exists, the DOL looks at the following factors:
Vertical Joint Employment
Vertical joint employment exists where the employee has an employment relationship with one employer (e.g., staffing agency, subcontractor, or labor provider) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work (potential joint employer).
In evaluating the economic realities, the DOL states that it will look at the following seven factors related to economic dependence:
In analyzing whether a horizontal or vertical joint employment relationship exists, the DOL states that the relationship agreed upon by the potential joint employers is not relevant to the determination of joint employment status. In a departure from past precedent, the DOL now will find joint employment even “where the alleged [joint] employer exercised little or no control or supervision over the putative employees.”
If you have any questions concerning the application of these new rules to your business please consult one of our employment attorneys.
Al Mezny is a member of the Board of Directors of the Firm who provides efficient counsel concerning your employment and information issues based on his 25 years of legal experience and his practical experience running his own business.