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New DOL Rule on Joint Employer

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On January 13, 2020, the U.S. Department of Labor (DOL) announced the final rule that will be used to determine joint employer status under the Fair Labor Standards Act (FLSA). The final rule is expected to become effective on March 16, 2020. 

Under the FLSA, the “joint employer” doctrine determines when one business can be held liable for another employer’s violations of the FLSA. Historically, the DOL said that this doctrine only applies where one company has “direct control” over another company’s workplace. In 2015 and 2016, however, the DOL released guidance letters that indicated that a business could be considered a “joint employer” if it exercised sufficient “indirect control” over a worker or where the worker was economically dependent upon the business. The broader standard disproportionately impacted companies that engaged in certain businesses, including construction work, hospitality and food service, and franchisor/franchisee business models. The final rule returns the DOL to the traditional economic realities test, which is based on “direct control.”

Central to the final rule is a four-factor balancing test which will be used to determine joint employer status. Specifically, the DOL will examine whether the putative joint employer exercises the power to: (a) hire or fire employees; (b) supervise or control work schedules; (c) set pay rates; and (d) maintain employment records. Significantly, a company’s retained right to exercise control over the employee is not enough to show that a business is a joint employer.  Instead, the company must actually exert that control. 

Although the final rule is helpful for employers under the FLSA, the rule has no bearing on joint employer determinations made under the National Labor Relations Act or Title VII of the Civil Rights Act. The National Labor Relations Board and the Equal Employment Opportunity Commission are expected to propose joint employer regulations in the coming months. 

We will continue to provide updates on this subject. If you have any questions, please contact one of Honigman’s Labor and Employment attorneys.