The joint employer paradox; a final federal rule arrives

Stephen Scott, BridgeTower Media Newswires

As many businesses know, the question of whether someone is a joint employer rarely has a clear answer. Unfortunately, I am typically the bearer of bad news when it comes to this question, because it is usually posed to me when an employer is faced with the potential of additional liability stemming from this esoteric/hypothetical joint employer relationship.

Well, today is the day that I bring good news to many. The U.S. Department of Labor (USDOL) just finalized its rule that attempts to limit the scope of joint employment liability for wage and hour matters. This rule may usher in a new era, and could lead to fewer businesses being found to be joint employers by a court or agency when it comes to minimum wage, overtime and other similar liability under the Fair Labor Standards Act (FLSA). Employers should now reexamine their business models to capitalize on the new standard.

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4-factor test, in a nutshell

The USDOL’s new rule will determine whether a business is a “joint employer” – equally liable for liability under federal wage and hour laws – through the use of a four-factor balancing test. It will assess whether the entity:

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. The USDOL noted that no single factor will be dispositive in determining joint employer status, and the appropriate weight to give each factor will vary depending on the circumstances. Very little guidance was provided on how the factors should interact, leaving these questions to be decided by judges and USDOL investigators. Therefore, each individual prong should be examined fully to properly assess whether one is a joint employer.

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The classic catchall

The four-prong test is not the only test related to joint employers. There is of course a catchall provision (no surprise) that states that factors not specifically included in this four-part test may still end up being considered in the joint employment determination. However, this catchall provision applies only if such unremunerated factors are indicative of whether the potential joint employer exercises “significant control” over the terms and conditions of the employee’s work. The proper interpretation of this alternative analysis is yet to be seen, and likely will be different depending upon which judicial circuit considers the test. Given we are in Oregon, I believe it will be applied very broadly.

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Concerns remain

While these new standards are an improvement for the business community from USDOL’s previous guidance on joint employment, some concerns still linger:

The new rule provides little guidance regarding the weight to be given to each of the four factors. The fact that the new standard is a balancing test open to interpretation could lead an aggressive fact-finder to find a particular business circumstance warrants a finding of joint employment, while a similar circumstance could be found to be a harmless arms-length business relationship by another investigator or court.

Regarding the second factor, there are bound to be questions, disagreements and litigation over the question of how “substantial” the supervision and control over an employee’s work schedule or conditions of employment need to be in order to tip the scales toward a joint employment finding.

The final version of the regulations create uncertainty because it includes catchall language stating that agencies and courts may, in their discretion, rely on factors not included in the four-factor test. This is worrisome for the business community as it runs the risk of abuse.

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What’s next?

The new rule will take effect on or about March 16, depending on when the rule is formally published in the Federal Register. Now is the time to work with counsel to determine whether one can adopt business changes that maximize one’s ability to take advantage of the new joint employment standard.

As an aside, I expect the National Labor Relations Board to unveil its own finalized joint employment rule any day now, and the Equal Employment Opportunity Commission is expected to follow suit sometime in 2020.

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Stephen Scott is an associate in the Portland office of Fisher Phillips, a national firm dedicated to representing employers’ interests in all aspects of workplace law. Contact him at 503-205-8094 or smscott@fisherphillips.com.