On April 1, 2019, the Department of Labor (“DOL”) published its third proposal in 30 days to revise regulations interpreting the Fair Labor Standards Act (“FLSA”). The April 1 proposed rule would revise and clarify the test for when multiple employers (known as “joint employment”) can be held responsible for wages under the FLSA. The notice and full text of the rule can be found here.
The proposed regulations would establish a four-factor test for joint employment, and that change would provide welcome relief to many who have been caught in a joint employment vortex over the past few years. The test focuses on “control,” evaluating whether both potential employers do the following:
- hire or fire the employee;
- supervise and control the employee’s work schedules or conditions of employment;
- determine the employee’s rate and method of payment; and
- maintain the employee’s employment records.
The proposal also states that other factors may also be relevant if the four factors above show that the potential joint employer exercises “significant control over the terms and conditions” of the employee’s employment, or otherwise acts “in the interest of the employer in relation to the employee.”
The proposed regulations contain sharp departures from the positions taken by the Obama-era Department of Labor. For example, the Obama-era DOL published administrative guidance that raised questions about the relationship between franchisors and franchisees under the FLSA. In contrast, the proposed regulations expressly state that the business relationship between two companies, such as a franchisor/franchisee relationship, has no bearing on whether joint employment exists.
In its Notice of Proposed Rulemaking (“NPRM”), DOL stated that its proposal would “promote fairness and predictability” in contrast to the multiple tests that courts currently use to evaluate joint employment. DOL further noted that its proposal could “promote innovation and certainty” in business relationships. As examples, the NPRM noted that concerns over joint employment might impact an entity’s willingness to engage in various activities, such as:
- a franchisor might be less willing to provide a sample employee handbook to franchisees under a broader joint employment standard;
- a company may be reluctant to allow another company to operate a facility on its premises; and
- companies may be reluctant to require business partners to engage in certain practices, such as having sexual harassment policies or other measures designed to encourage compliance with law.
The NPRM also expressly acknowledges the recent public attention that joint employer status has drawn, noting the tremendous amount of “attention, concern, and debate” about joint employer status.
The proposed regulations, if adopted, would provide a simple and uniform test and specific examples of joint employer status. As with its other recent proposals, DOL has published additional information about the joint employer regulations, which can be found here. The agency is accepting comments regarding these changes for sixty days or until approximately June 2. A final rule, which may vary from the current proposal, is expected to be published later this year.
Key Takeaway
The rule change has not yet gone into effect, and given the attention the issue has attracted, the proposed rule may change or otherwise face a number of hurdles before becoming final. Employers should monitor the progress of the proposed rule while continuing to ensure compliance with the FLSA and its current applicable authority and guidance.
This article was drafted by Helen Holden, an attorney in Spencer Fane’s Phoenix, Arizona office. For more information, please visit www.spencerfane.com.