By Michael Quillen
The Department of Labor (DOL) has issued its long-awaited update to the joint employer status rule under the1938 Fair Labor Standards Act.
The department was seeking “to promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.”
Under the new rule, companies will not be deemed joint employers based on the nature of their business model, although some may still be considered joint employers based on the company’s evaluations in the four-part test.
In essence, franchisors will not be considered joint employers solely due to being franchisors.
At the center of the rule is the DOL’s adoption of the four-part test for assessing whether one company is a joint employer for another company’s employees. The test, which is derived from Bonnette v. California Health & Welfare Agency, features these factors:
- Whether the company hires or fires the employee.
- If the company supervises and controls the employee’s work schedule or conditions of employment to a substantial degree.
- If the company determines the employee’s rate and method of payment.
- If the company maintains the employee’s employment records.
The rule is meant to offer additional guidance on how to apply the test to employers.
For example, to be classified as a joint employer, the second employer must exercise—directly or indirectly—one or more of the four factors. The second employer’s ability or reserved right to act in relation to the employee is relevant but does not solely demonstrate joint employer status without actual exercise of control.
Recently, several large corporations have faced similar private lawsuits claiming that as joint employers they have withheld minimum wages and overtime payments along with third-party contractors. The DOL’s new rule may now permit employers to exert more control and influence over independent contractors without the risk of being penalized as a “joint employer."
In the wake of the DOL’s new rule, other agencies and boards have taken notice.
The National Labor Relations Board (NLRB) and the Equal Employment Opportunity Commission (EEOC) will soon weigh in on collective bargaining and workplace discrimination laws. Both the NLRB and the EEOC look to tighten their approaches to shared liability under separate regulations.
The new rule, which takes effect March 16, can be found here.
Michael Quillen is a policy associate in NCSL's Labor and Economic Development Program.