Since July 2021, when U.S. Department of Labor (DOL) rescinded its 2020 Fair Labor Standards Act (FLSA) joint employer rule, there has been no uniform rule addressing when two employers are subject to liability under the FLSA for alleged unpaid minimum wage and overtime as “joint employers.” Why does this matter? Joint employers can both be on the hook for damages for federal wage violations, including double damages (known as liquidated damages). In addition, the time an employee works at two different employers may be tallied up to reach the overtime threshold if those employers jointly employ the individual.
Without FLSA guidance, courts throughout the country have been applying different standards for deciding when a second entity might be held accountable for wage violations as a joint employer. This has resulted in confusion, particularly for businesses that operate across state lines. Many courts considering joint employment rely on a 1983 case from the Ninth Circuit Court of Appeals (covering Montana, California, and other Western states), Bonnette v. California Health & Welfare Agency, which looks to four relevant factors called the “Bonnette factors.” But even while relying on the Bonnette factors, variations amongst the courts are significant. For example, the Second Circuit’s test (covering New York, Connecticut and Vermont) first considers the Bonnette factors to determine whether a second employer has “formal control” over workers, in which case it is a joint employer. But then, if an employer is not a joint employer under the Bonnette factors, the circuit considers six additional factors to determine whether it has “functional control” over workers, in which case, it is also a joint employer. And beyond the many variations on the Bonnette factors test, some courts (like the D.C. Circuit) reject the Bonnette factors altogether, applying a completely different standard, focusing on the relationship between the two employers rather than the relationship between the entities and the employee.
DOL promises its new rule will solve this confusion. The rule sets out (non-exhaustive) factors to determine whether an employer is a joint employer under two circumstances: vertical joint employment (an employee works for one employer, but another employer simultaneously benefits) and horizontal joint employment (an employee works separate hours for two or more associated employers in the same workweek).
DOL proposes that to determine whether a second employer is a vertical joint employer, it will consider four non-exhaustive factors: whether the second 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 records.
DOL’s proposed rule adds some helpful limitations on the above factors which are favorable to employers. For example, DOL’s proposed rule explains that a potential joint employer’s reserved control (i.e. authority to control the conditions of an employee’s employment) is “less relevant if in practice the potential joint employer never exercises such authority,” and that actual control is more relevant. DOL’s proposed regulations also clarify that an employer’s voluntary decision to accept a potential joint employer’s recommendation is not indicative of indirect control under this test. Just because a restaurant hiring a cleaning service recommends termination of a cleaner and the cleaning service voluntarily complies doesn’t make the restaurant a joint employer of the cleaner, says DOL.
DOL interprets horizonal joint employment as occurring where (1) there is an arrangement between the employers to share the employee's services; (2) one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) the employers share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.
Here too, DOL’s proposed rule gives some helpful clarifications for employers. For example, DOL’s rule suggests that simply sharing a vendor or being franchisees of the same franchisor will not, standing alone, be enough to create joint employment.
This rule isn’t final and employers should not apply the rule outside its context—it only applies to the FLSA, Family Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Still, DOL’s proposed rule (if adopted) may provide some useful clarity to potential joint employers about possible liability for minimum wage and overtime.
