The U.S. Department of Labor (DOL) recently called attention to joint employer relationships through an administrator’s interpretation issued on January 20, 2016. While not binding law, the release from DOL should alert employers who knowingly share employees with other entities to potential liability they may face under the federal Fair Labor Standards Act (FLSA).
Readers may recall that the FLSA is the federal law that regulates wage and hour practices in workplaces. It requires employers to do things like pay employees a minimum wage and pay non-exempt employees an overtime rate for all hours worked over 40 in a week. Although individuals may rely on civil litigation to enforce violations, the DOL’s Wage and Hour Division also enforces the FLSA. As the government’s enforcing agency, courts typically give DOL’s opinion great weight when evaluating cases.
In its January 20, 2016 administrator’s interpretation, DOL stated that many current employment relationship models involve two or more employers. DOL breaks it down into two types of joint employment: horizontal and vertical.
Horizontal joint employment exists where “two (or more) employers each separately employ an employee and are sufficiently associated with or related to each other with respect to the employee.” Think of the franchise owner who has employees working at different locations that may operate under different legal entities but are all managed by the same people. DOL advises that determining whether a horizontal joint employment relationship exists focuses on the relationship of the employers to each other.
DOL also identified vertical joint employment as another relevant relationship. This occurs where an employee of one employer is economically dependent on another employer. This type of relationship may exist with employers who rely on staffing agencies to fill some hiring needs or subcontractors on construction projects. In contrast with horizontal joint employment, DOL advises that the analysis for vertical joint employment focuses on an employee’s relationship with the potential joint employer.
Although joint employment relationships of either nature are important for a number of reasons, two significant ones relate to liability. If a joint employment relationship exists, an employee’s hours worked for each employer will be combined to determine whether the employee must be paid overtime. For example, assume Employer A and Employer B are horizontal joint employers of Bill. In a given week, Bill works 25 hours at Employer A and works 20 hours at Employer B. Under a joint employment relationship between Employer A and Employer B, Bill should receive 5 hours of overtime pay (25 hours + 20 hours = 45 hours). If Bill is not receiving overtime pay when he works over 40 hours, Employer A and Employer B violate the FLSA.
A second significant reason joint employment relationships are important deals with who can be held accountable if there is a FLSA violation. Take our example with Bill above. If Bill is owed but not receiving overtime compensation each week, he could sue to recover the unpaid wages. Under a joint employment relationship, Employer A and Employer B are what is called “jointly and severally liable” for Bill’s damages. That is, Employer A and Employer B can each be required to pay Bill’s damages regardless of whether Bill worked at Employer A or Employer B more. When employers employ large workforces, even small violations can quickly accrue to large damages, which are significant to any party that may be held jointly and severally liable.
DOL’s administrative interpretation also offers guidance for employers to assist in determining whether a joint employment relationship exists. While helpful, much can be at stake if an employer attempts to rely on its own analysis alone. Employers with questions about even the possibility of a potential joint relationship should consult with counsel experienced in employment law to make sure you know your status and avoid any violations.