By Elizabeth P. Johnson and Lindsay M. Massillon
As published in the Daily Business Review on January 14, 2020
On Jan. 16, 2020, the Department of Labor (the DOL) will publish its anticipated final rule revising its interpretation on “joint employer” relationships under the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq. (FLSA). The rule will become effective March 16, 2020, 60 days after its publication.
The joint employer relationship is a hotly contested issue within FLSA litigation because if an entity or individual is deemed to be a joint employer of an employee seeking overtime compensation or minimum wage, that entity or individual would be jointly and severally liable to the employee for any damages awarded for unpaid overtime or minimum wage. The current iteration of the interpretive FLSA regulation on the topic, 29 C.F.R. Part 791, contains vague language related to joint employers. The DOL deemed this language “not necessarily helpful,” and published a notice of proposed rulemaking suggesting modification of Part 791 in April 2019. Until now, Part 791 had not been changed since it became effective over 60 years ago.
Adopting a slightly modified version of the four-factor balancing test set forth by the U.S. Court of Appeals for the Ninth Circuit in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983), the final rule streamlines the joint employer inquiry. In order to determine whether one or more entity or individual is a joint employer, the final rule sets forth the test that evaluates whether the alleged joint employer hires or fires the employee; supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; determines the employee’s rate and method of payment; and maintains the employee’s employment records. No single factor is determinative, and the DOL suggests that courts give appropriate weight to the factors depending on the circumstances. Further, if only the fourth factor exists, it is unlikely that a joint employer relationship will be shown. The final rule provides significant guidance on how to apply each of the factors so that joint employer liability can be better assessed. The DOL also suggests other factors that may be helpful in determining the existence of the joint employer relationship, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employer’s work.
The final rule addresses circuit court dissonance on the factors relevant to finding a joint employer relationship. This stems from the original regulation’s vague terms, which were subject to a wide degree of interpretation by the courts. Thus, various “tests” were developed by courts in order to determine whether a joint employer relationship existed. The DOL makes it clear in its Final Rule that the changes clarify its stance on the issue, and that it expects that this will lead to consistency among the circuit courts.
For example, the precedent in the Eleventh Circuit is an eight-factor test which involves, inter alia, assessment of the ownership of the facilities where the employee works, preparation of payroll, and investment into equipment and facilities. See Layton v. DHL Express (USA), 686 F.3d 1172, 1176 (11th Cir. 2012). While considered in addition to several factors similar to the four-part test in the final rule, these other factors are still part of the Eleventh Circuit’s balancing, though they are not directly related to “significant control” over the “terms and conditions” of employment, which is the DOL’s goal with the streamlined, four-part test. As the DOL stated in the final rule: “These factors are simple, clear-cut, and easy to apply.”
From the employer perspective, the four-factor test is welcomed as it focuses on actual control rather than control that may only exist in contractual terms—such as a reservation of rights—which may be rarely evoked. Such contractual terms could be raised by an employee to support the existence of a joint employer relationship as the regulation currently reads. Moreover, the final rule’s comments on the types of common business models, business practices and contractual provisions that do not make the joint employer relationship more or less likely bodes well for would-be employers under the current phrasing and interpretation of the regulations.
Elizabeth P. Johnson is a shareholder at Fowler White Burnett where she focuses her practice on all aspects of labor and employment law. Contact her at EJohnson@fowler-white.com.
Lindsay M. Massillon is an associate at the firm where she focuses her practice on labor and employment law and commercial litigation. Contact her at LMassillon@fowler-white.com.