US Labor Department revises wage-and-hour rules about joint employers

On March 16, new regulations will take effect that help define “joint employer” for purposes of wage-and-hour responsibilities under the Fair Labor Standards Act (FLSA) like those about minimum wage and overtime. The new rules follow an extensive public commentary period after which the Wage and Hour Division (WHD) within the U.S. Department of Labor (DOL) did not make many changes to its initial proposals.

We have previously written about “joint employers” for purposes of liability for violation of labor laws. Today we look at revised DOL regulations that will determine joint employment for establishing liability for paying overtime and minimum wage.

Simultaneous benefit

The main focus of the major regulatory revisions is to clarify the situation where an employee’s work for an employer simultaneously benefits another employer, answering the question of whether the other entity is a joint employer jointly and severally liable for overtime and the payment of minimum wage.

Four-factor test

The DOL is adopting a four-factor balancing test to help analyze whether an employee’s work directly or indirectly benefits a joint employer. There is a lot of emphasis throughout the new scheme on the level of control the potential joint employer has over the worker’s job.

The test is based on one laid out in an important U.S. Court of Appeals for the 9th Circuit case called Bonnette v. California Health and Welfare Agency. The Bonnette balancing-test factors consider whether the third-party entity is involved with:

  • Hiring or firing the worker
  • Supervising and controlling to a “substantial degree” the worker’s schedule and other conditions of employment
  • Determining the pay rate and payment method
  • Maintaining employment records

The regulation changes the first factor from Bonnette in that the potential joint employer must have actually hired or fired the person – it is not enough that the entity had the power to do so but has not. In addition to the four factors, other things that might be relevant to joint employment may only be considered if they impact whether the entity has a substantial degree of control over the employee.

Other factors

The new rules also say that it is not relevant to the joint-employer question whether the employee is economically dependent on the potential joint employer, nor is it relevant that the employer and potential joint employer may have any of a list of certain kinds of business relationships, like a franchise arrangement.

Finally, the agency adds nine examples to the regulation of how to analyze a given employment relationship under the new standards. Throughout the published notice of the final rule, when the agency discusses the public comments it received about the proposed rule, it usually agreed with the opinions of proemployer and probusiness parties, rather than with those of employee advocates.

This is a broad introduction of a detailed change in federal wage-and-hour law important to both employers and employees.





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