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Joint Employment Challenges Continue in 2016

Employment Law Update - February, 2016

February 10, 2016

The legal concept of “joint employment” exists when a person is employed by two or more entities, such that the employers are responsible, individually and jointly, to the employee for compliance with a particular statute or regulation. While the legal theory is not new, the increased attention and expansive interpretation it has received over the past year are.

Last August, the National Labor Relations Board (NLRB) expanded joint employer liability under the National Labor Relations Act (NLRA) in Browning-Ferris Industries of California, Inc., 362 N.L.R.B. No. 186 (2015), finding that Browning-Ferris was a joint employer with a staffing agency providing workers at its facility. The NLRB also determined last year that the world’s biggest restaurant chain, McDonald’s, shares responsibility as a joint employer under the NLRA with franchise owners for managing their employees, a finding that could have far-reaching impacts on the company and others if it survives trial this year.

Last fall, the Fourth Circuit Court of Appeals, which has jurisdiction over North and South Carolina, addressed the issue of joint employment in the context of a manufacturer and a temporary employment agency, holding that both entities may simultaneously be considered the employers of a temporary employee placed at the manufacturer for purposes of Title VII of the Civil Rights Act of 1964. (A discussion of the Fourth Circuit’s decision in that case can be found here.)

Additionally the U.S. Occupational Health and Safety Administration is considering whether a joint employer relationship can be found between a franchisor and franchisee so that both entities are liable as employers under the federal Occupational Health and Safety Act (OSHA)(167 DLR A-7, 8/28/15).

Last month, the Wage and Hour Division (WHD) of the U.S. Department of Labor became the latest government agency to address joint employment when it issued an Administrator’s Interpretation (AI) that expands the department’s definition of “joint employment” under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). According to the AI, the joint employment test under the FLSA and MSPA is different – specifically, more inclusive – than the test under the NLRA and OSHA, in an effort to ensure “that the scope of employment relationships and joint employment” under the two laws “is as broad as possible.”

Under the FLSA and the MSPA, if two or more entities jointly employ an individual, that individual’s weekly hours worked for all the employers are added, most notably for purposes of calculating if overtime pay is due. Where joint employment exists, the employers are jointly and severally liable for any noncompliance with the Acts, including payment of overtime for all hours worked over 40 during the week.

The AI describes two types of joint employment arrangements: “vertical” and “horizontal.” Vertical joint employment is the arrangement that has been addressed most often and that was considered in the examples cited above. The analysis of whether a vertical joint employment relationship exists focuses on the relationship between the employee and employer. Specifically, when an employee has a working relationship with one employer (such as a staffing agency or subcontractor) and the economic realities show that he or she is economically dependent on a second employer as well, both entities will be considered employers.

The AI delineated seven factors for determining whether the “economic realities” in any given situation support a vertical joint employment relationship:

  • Directing, controlling, or supervising the work performed. The more control and supervision the potential joint employer has over the employee, the more likely there is a joint employment relationship.

  • Controlling economic conditions. Such control indicates economic dependence and, thus, joint employment.

  • Permanency and duration of relationship. A permanent or long-term relationship may indicate economic dependence and joint employment.

  • Repetitive nature of unskilled work. Repetitive, unskilled work also indicates economic dependence, supporting a joint employment determination.

  • Integral to business. If the employee’s work is integral to the business, that indicates economic dependence and joint employment.

  • Place work performed. If the employee performs work on the premises of the potential joint employer, this also suggests economic dependence giving rise to joint employment.

  • Performing administrative functions. If the potential joint employer performs
    administrative functions, such as processing payroll, this may also be indicative of
    economic dependence and joint employment.

No one factor above is controlling. The more factors the potential employer meets, the more likely it is that the WHD will find a vertical joint employment relationship.

Horizontal joint employment focuses on the relationship of the employers to each other, instead of to the employee. It exists when “the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.” In terms of employers that would be sufficiently associated or related to each other, typical examples would be common ownership or management, shared control over operations, or agreements between the companies. The factors the WHD will consider when determining
if a horizontal joint employment relationship exists are whether the employers:

  • Have shared ownership

  • Have overlapping officers, directors, executives, or managers

  • Share control over or have intermingled operations

  • Involve one potential joint employer supervising the other

  • Treat employees as a jointly accessible pool of employees

  • Share clients or customers

  • Have any agreements with each other

As with vertical joint employment, the more factors that apply, the more likely the WHD will find a horizontal joint employment relationship. Undoubtedly, the WHD is trying to expand the definition of joint employment. While the Administrator’s Interpretation is not law, it will serve as a guide for WHD investigators in what appears to be their increased enforcement efforts. Moreover, while the AI is not binding on courts, some may rely on it as persuasive authority. Accordingly, employers should review their vertical and horizontal relationships to assess where there is a potential for a joint employment relationship and take necessary action.

The Employment Law Alert is published as a service to our clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation.

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