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Alerts and Updates

U.S. Department of Labor Announces Final Rule that Limits Joint Employer Liability Under the FLSA

January 16, 2020

U.S. Department of Labor Announces Final Rule that Limits Joint Employer Liability Under the FLSA

January 16, 2020

Read below

The final rule replaces the “not completely disassociated” joint employer standard. 

On January 12, 2020, the U.S. Department of Labor (DOL) announced a final rule that sets forth principles governing the determination of joint employer liability under the Fair Labor Standards Act (FLSA). The DOL issued the final rule to “reduce uncertainty over joint employer status, promote greater uniformity among court decisions, reduce litigation, and encourage innovation in the economy.” The final rule will go into effect on March 16, 2020, and makes it more difficult for employees to sue multiple employers for wage violations. The rule was initially proposed by the DOL on April 1, 2019.

Obama-Era Joint Employer Liability

The final rule counters the Obama administration’s broader approach to joint employer liability. In January 2016, the DOL issued guidance that expanded joint employer liability. The guidance focused on the relationship between the potential joint employers and the economic dependence of the worker on the potential joint employer. The Obama administration sought to make franchisor corporations, such as McDonald’s or Dunkin’, responsible for workplace wage violations by their franchisees. The DOL under the Trump administration withdrew this guidance in 2017.

The Final Rule

The DOL has not meaningfully revised the FLSA’s joint employer regulation since 1958. The final rule replaces the “not completely disassociated” joint employer standard under 29 C.F.R. Part 79, which stated:

If all the relevant facts establish that two or more employers are acting entirely independently of each other and are completely disassociated with respect to the employment of a particular employee, who during the same workweek performs work for more than one employer, each employer may disregard all work performed by the employee for the other employer (or employers) in determining his own responsibilities under the [FLSA]. On the other hand, if the facts establish that the employee is employed jointly by two or more employers, i.e., that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee’s work for all of the joint employers during the workweek is considered as one employment for purposes of the [FLSA]. (Emphasis added.)

In place of the “not completely disassociated” standard, the final rule adopts the four-factor balancing test derived from the Ninth Circuit’s decision in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). The test shifts focus from a potential joint employer’s right to control, and instead examines the potential joint employer’s actual exercise of control over the terms and conditions of an employee’s work. The four factors consider whether the potential joint employer:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the employee’s employment record.

No single factor is dispositive for determining joint employer status, and the appropriate weight given to each factor will vary depending on the circumstances. Additional factors may be relevant to determine whether the potential joint employer is “[e]xercising significant control over the terms and conditions of the employee’s work.” Under the final rule, an entity is a joint employer only if that entity is acting directly or indirectly in the interest of the other employer and demonstrates an actual exercise of control. Whether an employee is economically dependent on an entity is no longer relevant for determining joint employer liability.

What This Means for Employers

The final rule makes findings of joint employment more difficult and should reduce minimum wage and overtime liability for franchisers and parent companies. Companies can become more involved with independent contractors and their business partners without risking joint wage liability. However, it is important to note that the final rule only affects joint employer status under the FLSA. The test may be different under other various federal and state laws, so employers evaluating potential joint employer exposure should not solely rely on the new rule.

For Further Information

If you have any questions about this Alert, please contact Christopher D. Durham, James P. Hollihan, Elisabeth Bassani, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.