Department of Labor Announces Proposed Joint Employer Rule

On April 1, 2019, the Department of Labor announced it will publish a notice of proposed rulemaking to amend its existing regulations, currently codified at 29 C.F.R. part 791, regarding whether a business qualifies as a joint employer under the Fair Labor Standards Act (FLSA). The FLSA requires covered employers to pay nonexempt employees at least the federal minimum wage for all hours worked and overtime for all hours worked more than 40 in one workweek. The proposed rule would clarify when additional businesses are jointly and severally liable with the employer for the employee’s wages under the FLSA.

The proposed rulemaking is the first interpreting joint employer status under the FLSA in 60 years. The current regulation was last promulgated on August 5, 1958. In 2016, under the Obama administration, the Department of Labor issued an Administrator’s Interpretation on joint employer status under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), but the Administrator’s Interpretation was rescinded shortly after Secretary of Labor Alexander Acosta took office in 2017.

The Department of Labor proposed a four-part balancing test to determine whether a business qualifies as a joint employer, which would balance whether the potential joint employer:

1. Hires or fires the employee;
2. Supervises and controls the employee’s work schedule or conditions of employment;
3. Determines the employee’s rate and method of payment; and
4. Maintains the employee’s employment records.

The proposed balancing test largely mirrors the test used by the Ninth Circuit in Bonnette v. California Health & Welfare Agency. However, the Department of Labor modified the first factor of the test from its application in Bonnette, in which the Ninth Circuit weighed whether an employer had the power to hire or fire employees, while the proposed rule weighs whether an employer actually exercised authority over an employee’s terms and conditions of employment. The Department of Labor explained that limiting the proposed rule to actual exercise of power rather than a theoretical ability to take actions ensures the test is consistent with Section 3(d) of the FLSA, which defines an employer to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d).

The Department of Labor stressed that the proposed test would be clear and easy for businesses to understand and applicable to a wide variety of contexts.  Additional factors may be relevant to the joint employer analysis if they are indicative to whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work or otherwise acting directly or indirectly in the interest of the employer in relation to the employee. However, the Department of Labor stated that economic dependence, i.e., whether an employee is economically dependent on the potential joint employer, is not relevant.

As the first meaningful regulation to the Fair Labor Standards Act’s joint employer rule in 60 years, the rule would have wide-ranging implications for businesses as it likely narrows which persons and entities are considered a joint employer under the FLSA. However, the rule is subject to public comment and could be amended before the final rule is completed. The agency has not yet published the rule in the Federal Register, but once published, public comment on the proposed rule will be due 60 days from its publication. For specific questions about the proposed rule, coverage under the Fair Labor Standards Act or minimum wage and overtime-related claims in general, please contact your Dinsmore attorney.