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DOL Broadly Interprets Joint Employment Liability Under FLSA

February 23, 2016

Whether an employee has more than one employer is important in determining the employee’s rights and the employer’s obligations under the Fair Labor Standards Act (FLSA). The FLSA mandates that employees receive the minimum wage and be paid overtime for work beyond 40 hours per week. Employment under the FLSA is broadly defined as “to employ” and “to suffer or permit to work.” Under this definition, two or more employers may jointly employ a single worker. In consideration of the increasingly diverse business models in today’s workforce, the Department of Labor’s (DOL) Wage and Hour Division recently issued guidance on identifying those scenarios in which two or more employers jointly employ an employee and are therefore jointly liable for compliance under the FLSA. In its guidance, the DOL describes two different types of joint employment, horizontal and vertical, and also provides factors for consideration when analyzing whether a joint employment relationship exists. Click HERE to view the DOL’s guidance.

Horizontal Joint Employment: The DOL describes a horizontal joint employment relationship as an employment relationship between an employee and two or more employers who are sufficiently associated with or related to the employee such that they jointly employ the employee. The analysis focuses on the relationship of the employers to each other. For instance, a parent company and its subsidiary may be joint employers under the FLSA depending on the nature of the relationship between the entities and their association with the employee. Joint employment does not exist, however, if the employers are acting entirely independently of each other and are completely disassociated with respect to an employee who works for both of them. The DOL’s guidance identifies several factors relevant to the horizontal joint employment analysis.

Vertical Joint Employment: Conversely, a vertical joint employment relationship exists where the employee has an employment relationship with one employer (e.g., a staffing agency, subcontractor or third-party management company) but he or she is economically dependent upon another entity with regard to his or her work. For example, an employer may contract with an intermediary to furnish the employer with workers or administrative services. The focus for vertical joint employment is on whether the worker is economically dependent upon the potential joint employer. The DOL’s guidance identifies several factors relevant to the vertical joint employment analysis.

The Consequences of a Joint Employment Finding for Employers

When two or more employers jointly employ a worker, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA. This means that each joint employer will be responsible for all wages due to the worker, including any back wages, along with double damages and potentially even punitive damages.

Take-Away for Employers

In recent years the possibility that a worker is jointly employed by two or more employers has become more likely because of constant changes in the formation of work environments. The structure and nature of the employment relationship at issue should determine whether a particular case should be analyzed under horizontal or vertical employment, or both. Employers who share workers with another entity or who contract for services, labor or operations through an intermediary should be aware of and consider the DOL’s guidance to ensure compliance with the FLSA.

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