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Feds Clarify Position on “Joint Employer” Contract and Temp Workers

In September, we brought you news the National Labor Relations Board (NLRB) had overturned a longstanding precedent on joint employment as it relates to employers who use a staffing firm or similar resource to employ contract or temp workers. Companies and their staffing agencies may now be deemed joint employers even when the staffing agency controls hiring, firing, supervising, scheduling, disciplining, evaluating, assigning and training.

The U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) has now made an attempt to clarify its position by offering more guidance on the subject.

 

“The growing variety and number of business models and labor arrangements have made joint employment more common and our need to address it more pressing,” explains Dr. David Weil, the administrator of the WHD. “[This] interpretation…addresses who is an employer, pulling together relevant authorities—statutory provisions, regulations and case law—to provide comprehensive guidance on joint employment under the FLSA and MSPA. [It] reflects existing policy, and provides all stakeholders with clear guidance, including examples of how WHD considers joint employment in its enforcement of these laws.”

“The variety of working relationships employees now have in the workplace makes it increasingly harder for these employees to understand who their employer actually is,” adds Laurie Howell, cofounder and managing partner at Austin HR. “Companies are also confused or sometimes misled in respect to their relationships and responsibility to the individuals working for them.”

Specifically, the new guidance covers the concepts of horizontal and vertical employment and how those definitions can determine a joint-employer relationship between two employers (such as a company and its staffing firm). According to the guidance:

Horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee. The analysis focuses on the relationship of the employers to each other.

Vertical joint employment exists where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work. This other employer, who typically contracts with the intermediary employer to receive the benefit of the employee’s labor, would be the potential joint employer. Where there is potential vertical joint employment, the analysis focuses on the economic realities of the working relationship between the employee and the potential joint employer.

With the DOL noting the “concept of joint employment” should be “defined expansively under the FLSA,” the written agreement between a staffing agency and the business utilizing the staffing agency’s workers is incredibly important. Austin Employment Attorney Amy Beckstead recommends companies take special consideration in defining the relationship and responsibilities, including what happens when there are disputes or issues with workers (or the government).

The guidance points out that either definition—horizontal or vertical employment—can lead to a ruling of joint employment, which means:

  • The employee’s hours are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due.
  • All of the joint employers are jointly and severally liable for compliance.
  • When one employer is larger and more established, with a greater ability to implement policy or systemic changes to ensure compliance, WHD may consider joint employment to achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations.

“Companies found to be joint employers under the law not only face potential shared liability with respect to wage-and-hour violations, but also face liability with respect to other employment laws, including Title VII, FMLA, ADA and OSHA,” Beckstead says.

“Related entities can have joint employment relationships or more employees than believed because of a control group status,” Howell further explains. “Because these entities have different federal ID numbers and, in some cases, different ownership percentages among partners, they operate under the belief that employees performing work between their different entities are not eligible for overtime. Many employees, however, understand it differently and are confused when not paid overtime for working over 40 hours in a week.”

She continues to explain confusion then leads to mistrust, lost productivity, turnover and wage claims.

“Healthcare reform guidelines further complicate the matter,” says Howell. “WHD’s recent guidelines are a definite start in clarifying some of this confusion. Stay tuned though, as confusion surrounding this complicated weave of employee ownership and responsibility remains high.”

To review and download the WHD’s recent guidance, click here. The DOL now has a webpage devoted to joint employment under the FLSA as well, which can be accessed here.

 

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