DOL Proposed Rule Seeks to Clarify, Harmonize Joint Employer Status

The U.S. Department of Labor’s Wage and Hour Division (WHD) on Wednesday, April 22, announced a proposed rule to establish a single, nationwide standard for determining joint employer status under the:

• Fair Labor Standards Act (FLSA);
• Family and Medical Leave Act (FMLA); and,
• Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The Notice of Public Rulemaking (NPRM) is scheduled to be published in the Thursday, April 23, Federal Register. The 60-day comment period will run through June 22.

The Department of Labor (DOL) stated the initiative seeks to address a lack of consistent regulatory guidance, reducing litigation, and providing clarity for employers and employees regarding joint responsibility for wages and workplace rights under federal laws.

The proposed rule seeks to align the FLSA analysis with the FMLA and MSPA, establishing a uniform standard based on commonalities in federal court precedents. According to the DOL, when joint employment is established, employers are jointly and severally liable for employee wages and overtime, ensuring comprehensive compliance. 

“A clear standard on joint employment would give businesses more confidence to invest in partnerships, help employees understand their rights and make the department’s investigations more efficient,” said Acting Secretary of Labor Keith Sonderling.

The NPRM specifically stated the proposed analysis would:

• Set forth distinct standards for determining joint employer status in “vertical” and “horizontal” scenarios — a distinction that courts and the DOL have long drawn.
• Advise that horizontal joint employment exists when separate employers are sufficiently associated with respect to the employment of the same employee, but that business relationships which have little to do with the employment of specific employees — such as sharing a vendor or being franchisees of the same franchisor — are alone insufficient to establish joint employment.
• Adopt a four-factor analysis for use in every case of potential vertical joint employment, examining whether the potential joint 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.

• Explain that additional factors may be relevant in assessing vertical joint employment, but that a unanimous finding on the four factors in either direction would establish a “substantial likelihood” regarding whether an individual or entity is a joint employer with another.
• Advise that “reserved control” may be considered but is less indicative of vertical joint employment than exercised control, consistent with the judicial focus on “economic reality” in FLSA employment disputes.
• Exclude the consideration of factors that are relevant only in assessing whether a worker is an employee or independent contractor — specifically:

1. Whether the employee is in a job that otherwise requires special skill, initiative, judgment, or foresight; 
2. Whether the employee has the opportunity for profit or loss based on his or her managerial skill; and
3. Whether the employee invests in equipment or materials required for work or the employment of helpers.

• Exclude the relevance of the following general business models and business practices when determining joint employment:

1. Certain contractual agreements related to health, safety or legal compliance, including anti-harassment policies, background checks and workplace safety protocols;
2. Providing a sample employee handbook or other forms to another employer;
3. Offering an association health plan or association retirement plan to another employer or participating in such a plan with the employer;
4. Jointly participating in an apprenticeship program with another employer;
5. Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model; and,
6. Auality control standards to ensure the consistent quality of the work product, brand, or business reputation.

• Provide examples illustrating how the proposed analysis would apply in certain factual circumstances.

By aligning these standards, the department aims to reduce the burden of compliance for employers while better protecting workers. The proposal is designed to promote better business practices and ensure uniformity in how the WHD and the courts apply these laws. 

“The rule we propose today would deliver much-needed regulatory clarity in the face of divergent judicial precedent throughout federal courts of appeals,” said Wage and Hour Division Administrator Andrew Rogers. “Clear guidance strengthens worker protections because it ensures that employees receive all wages and benefits they are owed, even if one employer is unable or unwilling to pay. The proposal would also reduce compliance and litigation costs for employers while helping Wage and Hour Division investigators identify what is and is not a joint employment relationship.”

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Benefits
• Employee Compensation
• Total Rewards