By Glenn Duhl
In the labor context, when an entity is considered a joint employer of a direct employer’s employees, both the entity and the direct employer may be held liable for any unfair labor practices. Whether two entities are considered joint employers differs depending on what federal statute is at issue: the National Labor Relations Act (NLRA), as applied by the National Labor Relations Board (NLRB), or the Fair Labor Standards Act (FLSA), as applied by the U.S. Department of Labor (DOL).
The standards used to determine joint employer status under the NLRA and FLSA have gone through several changes throughout the years as the political climate has changed.
Joint Employer Status Under the NLRA
Under the NLRA, when entities are considered joint employers of employees covered by a collective bargaining agreement, they are viewed as part of a single bargaining unit and may be held liable for violations of the NLRA. Accordingly, the standard used to determine a joint employer relationship under the NLRA is of importance to businesses that engage contractors or staffing agencies to supply workers, as it has the potential to expand liability for unfair labor practices and collective bargaining obligations that pertain to employees of a separate employer.
Traditionally, establishing joint employment under the NLRA required that the purported joint employer exercise “direct and immediate” control over the other entity’s employees. Under such circumstances, two employers were considered to be “joint employers” only when they exerted direct and significant control over the same employees by sharing authority over the terms and conditions of employment for the employees in question. Those factors include the right to hire, terminate, discipline, supervise and direct the employees. The control exercised by the putative joint employer must be direct, immediate, and substantial; it cannot be theoretical, occasional, or limited.
In 2015, the NLRB significantly broadened the longstanding rule used for determining joint employer status. In Browning-Ferris Industries of California, Inc., the NLRB adopted a much looser standard whereby it considered “indirect control” to be the main factor in determining whether a joint employer relationship existed under the NLRA. In rejecting the “limiting requirements” previously imposed, the NLRB specified:
We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Reserved authority to control terms and conditions of employment, even if not exercised, is clearly relevant to the joint-employment inquiry. . . Nor will we require that, to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint-employer status.
Accordingly, under Browning-Ferris, joint employment could exist where, for example, an entity exercised only indirect control over the workers at issue, or where the entity had the right to control the workers but did not exercise said right.
On Feb. 26, 2020, the NLRB issued a final rule restoring the standard that was applied prior to Browning-Ferris. The final rule provided that two entities are considered joint employers if they “possess and exercise such substantial direct and immediate control over one or more essential terms or conditions of employment of another employer’s employees.”
The rule clarified the list of essential terms and conditions to be wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. In issuing this new rule, the NLRB emphasized the important consequences of the joint employer rule and stated that “the purposes of the NLRA are not furthered by drawing into a collective-bargaining relationship, or exposing to secondary coercion and joint and-several liability, a direct employer’s business partner that does not actively participate in decisions setting employees’ . . . essential terms and conditions of employment.”
Joint Employer Status Under the FLSA
Under the FLSA, two entities may be joint employers, both responsible for wage and hour obligations to employees, including payment of minimum wage and overtime. This may be problematic, for example, if the two employers each employed a non-exempt employee for less than 40 hours and did not pay overtime, but the combined hours the employee worked for both employers exceeded 40 hours. If such employee worked a 60-hour week – 30 hours for one employer and 30 for another and they were determined to be joint employers – the employers would be jointly liable for 20 hours of overtime.
Prior to 2020, it had been 60 years since any revisions were added to the joint employer rule under the FLSA. On Jan.16, 2020, the DOL announced a new rule narrowing the definition of joint employer under the FLSA, which took effect March 16, 2020. The 2020 rule identifies two types of joint employment: “vertical” joint employment, in which an employee works for only one employer but depends on another business entity with respect to their work, and “horizontal” joint employment, in which an employee is employed by more than one distinct employer.
The 2020 rule set forth four factors to use to determine whether an employer is a vertical joint employer. These factors include whether the employer:
- Hires or fires the employee
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
- Determines the employee’s rate and method of payment
- Maintains the employee’s employment records
As to horizontal joint employment, the 2020 rule noted that “if the employers are acting independently of each other and are disassociated with respect to the employment of the employee,” they are not joint employers, but “if the employers are sufficiently associated with respect to the employment of the employee, they are joint employers and must aggregate the hours worked for each for purposes of determining compliance with the [FLSA].”
Current Joint Employer Rule
On July 29, 2021, the DOL issued a final rule rescinding the 2020 rule and concluding that the 2020 rule is inconsistent with the FLSA’s text and purpose. The DOL has since extended the effective date of that rescission until Oct. 5, 2021.
The DOL noted that the focus on actual control in the 2020 rule’s four-factor test was inconsistent with the “economic realities” test used by the courts and the DOL to determine joint employment. With respect to horizontal joint employment, the DOL stated that “although consistent with prior guidance, [the analysis] was intertwined with the vertical joint employment analysis, and thus” was also rescinded.
Effective Sept. 28, 2021, the 2020 rule will be removed in its entirety from the Code of Federal Regulations. The DOL has not yet proposed new guidance with which to replace the rescinded rule. Rather, as it states in the new rule, “the Department will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or subregulatory guidance is appropriate.” Thus, the somewhat differing joint employer analyses adopted by the federal courts of appeals prior to the 2020 rule will remain in effect.
The NLRB has yet to make any changes to its 2020 rule restoring the standard that was applied prior to Browning-Ferris. However, with the shifting political climate, such a change is possible, and likely. The Biden administration is committed to creating more employee-friendly rules and legislation, and has emphasized the importance of the strong joint employer standard to worker protections.
As a result of the broader scope of joint employment, businesses – particularly those that license franchises or rely on temporary staffing agencies for labor – should ensure compliance with all aspects of the FLSA as they will likely face an increased risk of joint employer liability.
Glenn Duhl is a management-side employment and litigation lawyer at Zangari Cohn Cuthbertson Duhl & Grello P.C. Please visit www.zcclawfirm.com.
The information contained in this article is general in nature and offered for informational purposes only. It is not offered and should not be construed as legal advice.
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