DOL Modifies Joint Employer Test

On January 16, 2020, the U. S. Department of Labor (DOL) officially issued a new rule (Rule) that materially narrows the DOL’s joint employer test.¹ The Rule is effective March 16, 2020.

In the Rule, the DOL addressed two different potential joint employer situations. The first (and the most common) is where one employer directly employs the worker but another employer simultaneously benefits from the employee’s work, such as where a staffing firm assigns its employees to work for a client employer. The second is where two employers with certain connections each employ the worker for part of the same workweek, such as where an employee works 30 hours for one employer and 20 hours for another employer. Below is a summary how the new Rule will apply to each scenario.

Scenario No. 1

Under the Rule, whether the employer that simply benefits from the work of an employee will be considered a joint employer (and jointly and severally liable with the direct employer for compliance with the applicable requirements) will be evaluated under a new test that considers whether the putative joint 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; and
• Maintains the employee’s employment records (such as payroll and other records that pertain to the hiring, firing, supervision and control of work schedules or conditions of employment, or determining the rate and method of paying the employee).

The Rule explains that the “potential joint employer must actually exercise – directly or indirectly – one of or more of these indicia of control to be jointly liable under the Act.” Indirect control “is exercised by the potential joint employer through mandatory directions to another employer that directly controls the employee.” However, “the direct employer’s voluntary decision to grant the potential joint employers’ request, recommendation, or suggestion does not constitute indirect control that can demonstrate joint employer status.”

The Rule also identifies several relationships and activities that will NOT alone meet this new test, such as:

• Operating as a franchisor;
• Contractually requiring the direct employer to comply with specific legal obligations or to meet certain standards to protect the health or safety of its employees or the public;
• Contractually requiring the direct employer to meet certain quality control standards; and
• Providing a sample employee handbook or other employment forms.

Scenario 2

The Rule explains that, if the employers are acting independently of each other and are disassociated with respect to the employee’s employment, then each employer may disregard the work the employee performs for the other employee. By contrast, if the employers are associated with respect to the employee’s employment, then they will be considered joint employers and the employee’s hours in any workweek will be consolidated.

To determine whether employers are associated and, therefore, would be considered joint employers, the DOL will consider whether:

• There is an arrangement between them to share the employee’s services;
• One employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or
• They share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or under common control with the other employer.

The Rule includes several examples to illustrate its intended application. 

Based on the new Rule, it should be easier for businesses to establish contractual arrangements with independent service providers that will not inadvertently expose them to liability for the service provider’s failure to comply with its labor and employment obligations. Nonetheless, the joint employer analysis is fact intensive and the new Rule remains subject to interpretation. Therefore, care still must be taken both in drafting such agreements and implementing them to ensure one does not become a joint employer.