(Photo of Saif underclinging a fissured rock wall in Keene Valley, NY in 2010.)

In a marked deviation from current regulatory standards and judicially accepted parameters of “joint employment,” the Wage and Hour Division (WHD) of the Department of Labor (DOL) issued – through Administrator David Weil Administrator’s Interpretation (AI) No. 2016-1, setting forth its “guidance” for determining employees’ rights and employers’ obligations under the Fair Labor Standards Act. (The AI also addresses joint employment under the Migrant and Seasonal Agricultural Worker Protection Act. The MSPA and the FLSA differ substantively, but share the same definition of “employ.”)

In the AI, Administrator Weil brings strong overtones of his book, “The Fissured Workplace,” to his job as Administrator of the WHD. Weil’s 2014 book attributes “declining wages, eroding benefits, inadequate health and safety conditions, and ever-widening income inequality” to outsourcing of workers by companies. He calls that growing inequality “fissuring” – a separation between employers and their workforce.

The January 20, 2016 AI is consistent with the goal Weil proposes in his book, which is to modernize regulatory policies and laws so that employers can meet their obligations to workers while ostensibly allowing companies to keep the beneficial aspects of the outsourcing and down-sourcing.

The AI begins with the basic premise that an employee can have two or more employers for the work he or she is performing. Under joint employment, an employee’s hours worked for all of his/her joint employers during the workweek are aggregated and considered as one employment for compliance with the Fair Labor Standards Act (FLSA) – including to calculate whether overtime pay is due, and whether the employers are jointly and severally liable under that Act.

Overview of AI 2016-1:

The AI addresses both “horizontal” and “vertical” joint employment.

  • Horizontal employment exists where an individual has employment relationships with two or more employers, and those employers are sufficiently associated or related that they all are deemed to employ that person; horizontal employment focusses on the relationship between the employing entities.
  • Vertical employment exists where an individual has an employment relationship with one employer – staffing agency, subcontractor, etc. – and the facts show that he or she is economically dependent on, and thus employed by, another entity involved in the work.

The AI addresses both, beginning with the statement that unlike the common law control test (which analyzes whether a worker is an employee based on the subject employer’s “control” over the worker), a joint employer relationship should be analyzed under a broader “economic realities” view of the relationship under the FLSA.

Further, Administrator Weil points out in a footnote that “[A]spects of both horizontal and vertical joint employment may be present in a single joint employment relationship. For example, both forms of joint employment could potentially exist where two warehouses share employees and use a staffing agency to provide them with labor.”

The AI goes into detail on the relationships that could constitute joint employment under the economic realities perspective – both from a horizontal and vertical standpoint – providing examples, and lists of factors to be included in any analysis of such relationship.

The joint relationship is painted with an extremely broad brush in this AI, expanding the joint employment concept in a way that obviates many benefits of outsourcing, staffing through agencies, and sub-contracting specialty jobs. Further, while the AI has broad applicability, its language specifically targets certain industries, including home health care, construction, janitorial, warehousing/logistics, and hospitality entities.

While the DOL has clarified that the AI was not meant to target franchised businesses, its Q&A on the guidance includes this statement: “Ultimately, of course, whether a particular franchisee and franchisor jointly employ a worker is based on the facts of each situation and must be made on a case-by-case basis applying the analyses discussed in the AI.” That language clearly leaves the door open for the WHD to subject franchise arrangement to the same level of scrutiny that the guidance seems to indicate will be given to other business entities.

Practical Effect of the AI:

The language of the AI is directed primarily at employers, but its practical effect is likely to begin with employees who are taking or considering legal action under the FLSA. Although the AI is couched as “guidance,” it is sure to be cited to courts in the near future as persuasive authority. The level of judicial deference to the AI, and the extent on which it will be relied in court opinions then will determine its ultimate effect on any extension of the “joint employer” analysis.

In addition, the DOL investigators on cases involving joint employment issues are sure to use the AI as leverage when attempted to move cases toward resolution outside of trial.

In short, and in order to avoid unintended liability under the FLSA, employers should become familiar with the content of the AI, its possible ramifications, and the specifics of the proposed parameters of the analysis that will be used by the WHD in future investigations.