Labor & Employment Law Update: Are You My Employer? Joint Employer Law
29 C.F.R. § 791 (effective Mar. 16, 2020)
After years of contrary court interpretations of the joint employer standard, the Department of Labor has published a final rule clarifying the law. The Final Rule is effective March 16, 2020 and is accessible at the bottom of this article.
JOINT EMPLOYER LIABILITY
Did you know that an individual who is not on your organization’s payroll could still be considered your employee? In situations where multiple individuals or entities are benefited from an employee’s work, the employee may have multiple employers. This means multiple individuals or entities could be jointly and severally liable as employers for overtime pay, minimum wage matters, and other requirements under federal law.
What does this joint employer liability look like? Organizations that work with temporary agencies or contract for services (including janitorial, lawn care, or IT service providers) could be considered “joint employers,” even when contracts specifically disclaim any employment relationship. Similarly, corporate affiliates rarely intend to jointly employ an individual, but may be subject to liability. Joint employers can be “an individual, partnership, association, corporation, business trust, legal representative, public agency, or any organized group of persons, excluding any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such a labor organization.”
WHEN DOES JOINT EMPLOYER LAW APPLY?
There are two scenarios where joint employer law applies: (1) when an employee works for one individual or entity and another individual or entity benefits from that work and (2) when an employee works for two different individuals or entities who are associated with each other in employment of the employee.
No Joint Employer Liability. Taylor works for Bank 8-4:30 M-F and Taylor works for Bar & Grill every Saturday night. Bank and Bar & Grill have separate shareholders and are not affiliated. Bank cannot hire or fire Taylor from Bar & Grill, does not supervise Taylor’s Bar & Grill work schedule or employment conditions, does not determine Taylor’s wages, and does not maintain Taylor’s Bar & Grill employment records. Taylor has multiple employers, but neither Bank nor Bar & Grill face joint employer liability since they are not sufficiently associated with each other in regards to Taylor’s employment.
Scenario 1: One Set of Hours Worked. There are four balancing factors to determine if an entity is a joint employer, focusing on whether the entity directly or indirectly controls the individual employee:
(1) Can the entity hire or fire the individual?
(2) Does the entity supervise, to a “substantial degree,” the individual’s work schedule or employment conditions?
(3) Does the entity determine the individual’s payment method and rate?
(4) Does the entity maintain the individual’s employment records (i.e. payroll records; documents relating to hiring, firing or supervising; or determining the rate and method of payment)?
Each of these factors are weighed based on the facts and circumstances of the particular case. Courts may consider other factors if they show that an entity exercises significant control over the employee’s employment terms and conditions.
In the past, employers have attempted to prevent joint employer liability through contractual provisions or policies in employee handbooks. The updated guidance clarifies that the following factors are not relevant to determine if there is a joint employer relationship are: economic dependence, contractual agreements for legal obligations or quality control standards, franchises, and the provision of employee handbook, forms, health and retirement plans, or similar business practices.
Potential Joint Employer Liability. ACME Packaging contracts with Smith Staffing for temporary employees. Smith Staffing assigns Frank to work at ACME Packaging. ACME Packaging and Smith Staffing sign a contract agreeing that Frank is a Smith Staffing employee, but ACME Packaging will have discretion to supervise Frank’s performance and will maintain records of his hours worked and performance. Smith Staffing and ACME Packaging might be joint employers because ACME Packaging exercises direct or indirect control of Frank. ACME Packaging could protect itself from joint employer liability by having Smith Staffing determine the hourly wage Frank earns and Frank’s schedule and hours. Although the contract is a good idea to clarify terms of ACME Packaging and Smith Staffing’s relationship, the contract does not shield ACME Packaging from liability as a joint employer.
Sarah works for a cleaning company that contracts with a restaurant, the restaurant is not a joint employer if they do not have the authority to hire or fire Sarah, even if the restaurant gives instructions, keeps records, and supervises Sarah. However, the restaurant is a joint employer if the restaurant has a more hands-on approach to instruction, keeping records, and even requesting the termination of Sarah, since the restaurant is exercising control over her terms and conditions of employment.
Scenario 2: Multiple Sets of Hours Worked. Separate entities may face joint employer liability if they are sufficiently associated. In these scenarios, an employee works two sets of hours for two entities, but the employers must aggregate the hours worked. When determining if employers are “sufficiently associated,” there are three factors to balance. (1) Is there an arrangement between the employers to share the employee’s services? (2) Is one of the employers acting, either directly or indirectly, in the other employer’s interest regarding the employee? (3) Do the employers share control, either directly or indirectly, of employee?
Potential Joint Employer Liability. For example, if Katie works 30 hours at Ole Joe’s Restaurant and 15 hours at Miss Mae Restaurant and both restaurants are locally owned, different franchises manage them, and there is no coordination between the two restaurants, then they are not joint employers of Katie. However, if the restaurants are owned by the same person who coordinates between the restaurants to determine Katie’s schedule, then the restaurants are likely joint employers of Katie. The same would be true if Katie worked at two different locations of the same bank or if she worked for two different departments within the same college or university.
To avoid joint employer liability, if you are using a staffing service or simply benefiting from another individual or entity’s employee’s work, then take precautions to avoid asserting direct or indirect control over the employee. For more information, see the regulation and fact sheet prepared by the Department of Labor. In addition to the Department of Labor regulations, other federal agencies have joint employer liability regulations or guidance (NLRB, OSHA, EEOC, etc.).
Contact Drew J. Gentsch, Jaki K. Samuelson, John F. Fatino or Kay Oskvig for more information about labor and employment matters at (515) 288-6041. Elaina J. Steenson, J.D. Candidate, Drake University, assisted in the preparation of these materials.