The final rule reverses the Obama-era FLSA interpretation in line with NACS comments
By NACS Online // January 13, 2020
ALEXANDRIA—The U.S. Department of Labor (DOL) Sunday released its long-awaited Fair Labor Standards Act (FLSA) “Joint Employer” rule governing when one business may be legally responsible under federal wage and hour law for another company’s employee. The new rule essentially reverses an Obama-era interpretation which greatly expanded the universe of employers considered to be a joint employer of another company’s workers.
The final rule largely follows comments filed by NACS and others urging the DOL to return to a test that essentially would require an employer to exercise direct control over another’s employee in order to be deemed a joint employer.
Yesterday’s rule establishes four primary factors for determining joint employer status in situations where an employee performs work for one employer that also benefits another entity or individual. The factors examine whether the business has the power to hire or fire employees, set schedules or other employment conditions, establish pay rates and keep employment records. Generally speaking, the business must actually exercise control in one of these areas, not simply retain the right to do so. This rule significantly restricts the universe of employers who can be found jointly liable for federal wage and hour law violations.
The DOL specifically denied two of NACS’ more minor suggestions in this rule. First, NACS had argued that the Labor department should not keep the record-keeping test as NACS felt that factor was something too easily taken advantage of in a complaint. Second, NACS had asked for a specific example clearly outlining that branding agreements do not trigger a joint employment relationship. In responding to both items, the DOL indicates it believes that other sections of the final rule adequately address these concerns. NACS counsel will be reviewing the new rule in depth to determine its full possible impact on our industry.
Members should keep in mind that, though far less publicized, another version of joint employment might be found in certain scenarios where an employee is performing work for two different employers. For example, a stock person working at more than one convenience store location might be jointly employed by both, or even an individual providing shared services to different types of business at adjacent locations.
For background: In 2015 the DOL under President Obama greatly expanded scenarios under which one business could be found to be a joint employer of another’s employee. Under those interpretations, if an employer was able to exercise even indirect control—interpreted very broadly—over another’s employee, it could be found liable as a joint employer. This caused significant concern in all corners of the business community.
Early on in the Trump Administration the new DOL leadership indicated they likely would be reviewing that position. Early in 2019, the Trump DOL issued its draft rule, which largely reflected the final rule issued Sunday. NACS filed comments, and NACS staff and counsels attended meetings with Administration staff to discuss our thoughts on the draft and what should be reflected in the final rule. The final rule takes effect 60 days after its date of publication.