Under the federal Fair Labor Standards Act and state law, employers may have to pay wages to employees who do not work directly for them. The federal government recently toughened its joint employer standards.
Relaxed standards
In 2020, the U.S. Department of Labor issued a rule on joint employer status under FLSA which was the first change to joint employment in 60 years. This rule relaxed requirements for employers and was promoted as having more guidance for claims under wage and hour laws. The federal government intended to expand these rules into other employment law, such as discrimination, but a new administration took office.
The relaxed rule made significant changes for determining vertical joint employment. Joint employment exists when an employer has an employment relationship with the first employer, but the second employer receives the benefits of the employee’s work.
Before the 2020 revisions, an economic realities test determined whether there was joint employment. Under this test, the employee is dependent on and employed by the second employer.
The 2020 changes imposed a four part-test for vertical joint employment which was intended to be more objective and predictable. Under that rule, the employer was responsible for paying wages if it hires or fires the employee; supervises and controls the employee’s schedule or employment conditions to a substantial degree; determines the employer’s payment rate and method; and, keeps the worker’s employment records.
The 2020 rule also addressed horizontal joint employment. This occurs when an employee works for two employees in a workweek. These companies may be joint employers if they are sufficiently associated with the employment of that worker.
Legal challenge
Shortly after the DOL rule proposal, 17 states and the District of Columbia filed a legal challenge in a New York federal court. That court struck down the rule’s vertical joint employer rules. It found that the proposed rule improperly restricted FLSA’s definition of employer.
The court upheld the changes to the horizontal joint employer rule. An appeal is before the federal Second Circuit Court of Appeals.
Pre-2020 rules take effect
Despite the ongoing litigation, the DOL announced earlier this year that it intended to withdraw the revised joint employer vertical and horizontal joint employment rules. The pre-2020 rules took effect again on Oct. 5, 2021.
Courts and the DOL may apply the broader economic realities standard for joint employment. It is likely that an employer sharing workforces will be classified as a joint employer. This includes employers using staffing agencies, subcontractors, labor providers and other intermediary employers.
Workers should know their joint employment and other wage and hour rights. Attorneys can assist them with seeking their entitled compensation.
