US: Proposed DOL Rule Narrows Joint-Employer Standard | Mercer

US: Proposed DOL Rule Narrows Joint-Employer Standard

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US: Proposed DOL Rule Narrows Joint-Employer Standard
US: Proposed DOL Rule Narrows Joint-Employer Standard
Calendar11 April 2019

A new Department of Labor (DOL) proposed rule that aims to clarify the standard for joint-employer status under the federal Fair Labor Standards Act (FLSA) would likely reduce the number of situations under which the status would apply.  The proposal, which sets out a new four-factor balancing test that focuses on the employer’s actual — not theoretical control — over an employee’s terms and conditions of work, comes nearly two years after the agency rescinded informal guidance on joint employment issued during the Obama administration. If finalized, the proposal would be the first meaningful revision of the joint-employer rule since 1958. Comments are invited through 10 Jun 2019.

Background

Under FLSA, employers are generally required to pay their nonexempt employees — those who are eligible for overtime pay — at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 in a workweek. When an employee has more than one employer and those employers are considered joint employers under FLSA, they are “jointly and severally” liable for the employee’s wages. 

New Test

The proposed rule addresses situations where an employee works one set of hours in the workweek for his or her employer, and that work simultaneously benefits another entity. Under the DOL’s current rule, joint employment may exist if an individual’s employment by one employer is “not completely disassociated” from employment by another employer. The proposed rule would eliminate this standard and replace it with a four-factor balancing test — which the DOL says is based on “well-established precedent.” Under the new test, joint-employer status would be limited to situations where the employer actually exercises the power to:

  • Hire or dismiss the employee
  • Supervise and control the employee’s work schedules or conditions of employment 
  • Determine the employee’s payment rate and method
  • Maintain the employee’s employment record

The rule includes several examples to illustrate how the new test would apply and outlines additional factors that should and should not be considered.

Further Clarification, Guidance

The proposal would also clarify that a particular business model (such as a franchise model); certain business practices (such as participating in an association health or retirement plan); and certain business agreements (such as requiring an employer in a business contract to institute sexual harassment policies) don’t make joint-employer status more or less likely.

The current joint-employer regulation also addresses the scenario where an employee works separate sets of hours for multiple employers in the same workweek. But the proposal largely leaves that guidance intact, making only “nonsubstantive revisions,” the DOL says.

The agency also recently proposed revisions to the FLSA rule governing the compensation that an employer must include in an overtime-exempt employee’s rate of pay when calculating overtime pay. Comments on that proposal are due 21 May 2019.

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