DOL Publishes HR Policy-Supported Joint Employer Rule

January 24, 2020

The U.S. Department of Labor has published the first substantive update of its joint employer rules in 60 years, accepting a number of recommendations from HR Policy Association.

The final rule, which is effective March 16, 2020, replaces the outdated “not completely disassociated” standard for determining whether a potential joint employer is directly or indirectly controlling an employee with a four-factor balancing test, including whether an employer:

  • Hires or fires the employee;

  • Supervises and controls the employee’s work schedules or conditions of employment to a substantial degree;

  • Determines the employee’s rate and method of payment; and

  • Maintains the employee’s employment records.

Additional factors may be relevant for determining joint employer status, but only if the potential joint employer is exercising significant control over the terms and conditions of the employee’s work.

Indirect control does not include the direct employer’s voluntary decision to accommodate the potential joint employer’s request, recommendation, or suggestion.  Similarly, acts that incidentally impact the employee do not indicate joint employer status.

An employer’s power, ability, or reserved contractual right to exercise control relating to one or more of the factors are not in themselves sufficient to establish FLSA joint employer status without some actual exercise of control.

Consistent with our Workplace 2020 recommendations and comments filed with DOL, the final rule also identifies other factors that do not make joint employer status more or less likely under the FLSA, including:

  • Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model;

  • The potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public;

  • The potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation; and

  • The potential joint employer’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.

Outlook:  The next significant test will come in the courts, as parties will either challenge the rule directly or urge the courts to follow or reject it in the course of wage and hour litigation.  The rule may also be short-lived should there be a change of administrations after the November elections.