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Deciphering Who Is a Joint Employer

October 20, 2017

If your company uses contract labor or temporary staffing, recent agency actions and court decisions may have turned your company into a joint employer who is legally responsible for its contract workers’ overtime pay.  Traditionally, companies were not considered joint employers unless they had direct control over the wages and other conditions of employment of another company’s employee.  However, Obama-era agency actions significantly broadened the scope of what may be considered joint employment.

The assault on the traditional standard began in August 2015 when the National Labor Relations Board (“NLRB”) issued its decision in Browning-Ferris Industries (“BFI”).  That decision revised the joint employer standard with regard to labor unions to make it easier for a company to be considered a joint employer of workers who are directly employed by another company.  Under BFI, companies could be considered a joint employer of another’s workforce if they had potential control over the employees’ working conditions, even if they were not exercising that control. Additionally, BFI established that a company could be a joint employer even if the control was exercised “indirectly,” such as through an intermediary. 

In January 2016, the Department of Labors’ Wage and Hour Division (“WHD”) followed the NLRB’s lead and issued an Administrative Interpretation that set new standards for determining joint employment under the Fair Labor Standards Act (“FLSA”).  The WHD stated, “The concept of joint employment… should be defined expansively under the FLSA.”  The agency claimed that in making a determination it would look to the “economic dependence” of the worker on the company, and not simply at the company’s “control” over the worker, as is traditional under common law.  In fact, the WHD indicated that a company could be considered a joint employer even when it “exercise[s] little or no control or supervision over the putative employees.”

In January 2017, the Fourth Circuit Court of Appeals in Richmond added to the confusion by creating a new hybrid test for determining joint employment under the FLSA.  In Salinas v. Commercial Interiors Inc. the court looked to DOL regulations to establish a six-factor list covering everything from “directly or indirectly” modifying the conditions of the worker’s employment to the duration of the relationship with the worker.  The court stated that these factors are not exclusive and that a finding under a single factor could be enough to establish joint employment.

Businesses have been justifiably concerned about these new, broader joint employer standards.  By establishing new rules, these decisions could result in employers being on the hook for overtime for “employees” they never knew they had.

Recently, however, the pendulum has begun to swing back toward the traditional standards.  In June, the Trump Administration’s DOL rescinded the Obama-backed Administrative Interpretation.  Now that Republicans have recently regained control of the NLRB, many observers believe it is only a matter of time before the NLRB revisits the “indirect test” and overturns Browning-Ferris Industries.

It now appears that Congress may weigh in on the issue, as well.  In July, Rep. Bradley Byrne (R-Ala.) introduced House Resolution 3441, known as the “Save the Local Business Act.”  The Act would roll back the recent changes to the law by limiting joint employment under both the NLRA and FLSA to situations where a person “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment (including hiring employees, discharging employees, determining individual employee rates of pay and benefits, day-to-day supervision of employees, assigning individual work schedules, positions, and tasks, and administering employee discipline).”  The House Committee on Education and the Workforce recently held hearings on H.R. 3441 and approved the bill by a vote of 23-17.

Whether we see a return to the traditional control test or not, employers should take particular care when it comes to their relationships with staffing agencies and independent contractors.  By auditing these relationships and revising contractor and agency agreements where necessary, employers can avoid liability down the road.

Jeff Wilson is a labor and employment attorney at Pender & Coward who is happy to answer questions about joint employment or other employment-related matters. Contact Jeff at (757) 502-7341 or jwilson@pendercoward.com.

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