DOL Proposes Pro-Employer Update to FLSA’s Joint Employer Regulations

The Department of Labor (“DOL”) recently issued a proposed rule to update the standards for joint employer liability with respect to wage and hours laws under the Fair Labor Standards Act (“FLSA”). This pro-employer proposal would affect employers and businesses by clarifying what constitutes a joint employer and who can be liable to an employee for wage and hour violations.

Under the FLSA, covered employers must pay their employees minimum wage for all hours worked and overtime wages for all hours worked in excess of 40 hours in a workweek. Two or more entities may be found to “jointly” employ an employee and, thus, be jointly and severally liable for any wage and hour violations.

The current regulation governing the joint employer standard was issued more than 60 years ago and has been subject to varying interpretations by administrative agencies and federal courts. The resulting array of joint employer tests have left employers with confusion and uncertainty.

The DOL’s new rule proposes the adoption of a clear four-factor test to determine joint employer status under the FLSA. This proposed test assesses whether an entity is a joint employer by analyzing whether the potential joint employer actually exercises the power to:

Hire or fire the employee;
Supervise and control the employee’s work schedule or condition of employment;
Determine the employee’s rate and method of payment; and
Maintain the employee’s employment records.

This proposed test differs from those tests currently used by various courts in that it considers a potential employer’s actual exercise of significant control over the terms and conditions of an employee’s work, rather than the potential employer’s theoretical power to control an employee. The proposed rule reflects the DOL’s attempt to allow businesses to contract or interact with each other without facing joint employer liability unless the businesses actually exercise meaningful control over employees.

This proposed rule would benefit businesses by providing a straight-forward standard that would allow them to more clearly assess whether their relationships may trigger joint employer liability. This proposal is particularly helpful to businesses that utilize franchise relationships, staffing agencies, independent contractors, or temporary workers, because the proposed rule would narrow the circumstances under which the DOL believes such entities would be considered a joint employer.

The DOL’s proposed rule also includes examples of common business interactions and explains how to apply the proposed test to each scenario. The proposed rule and examples can be found here.

The proposed rule is not yet effective and is open for public comment until June 10, 2019. Even if the proposed rule becomes effective, businesses should consult with an attorney to understand how these changes will be implemented and regarded in their specific location.

DeWitt’s Labor & Employment attorneys will continue to monitor the status of the proposed rule. In the meantime, if you have any questions about the DOL’s proposed rule, Wisconsin law on joint employer liability, or any other employment-related issues, please do not hesitate to reach out to Laura Davis at (608) 252-9337 or via email at lmd@dewittllp.com or another DeWitt LLP Labor & Employment attorney.

THE ABOVE COMMENTARY SHOULD NOT BE CONSTRUED AS LEGAL ADVICE. IT IS BEING PROVIDED FOR GENERAL INFORMATIONAL PURPOSES ONLY.