Citing the expansive definition of the term “employ” under the Fair Labor Standards Act (“FLSA”), the Department of Labor (“DOL”) recently issued an Administrative Interpretation stating that a company may be considered a “joint employer” of its temporary workers or independent contractors.
Joint-employer status is important because it can affect how work hours are counted for purposes of overtime pay, and whether more than one entity might be liable for not complying with the FLSA. For example, if a nurse works 25 hours in a week for each of two different nursing homes considered to be separate divisions of the same health care entity, those hours might have to be aggregated (for a total of 50 hours) for purposes of the FLSA. Then, each nursing home would be jointly and severally liable for ensuring that the nurse is paid for the 10 hours of overtime.
The Administrative Interpretation explains that there are two types of joint employment relationships: (1) horizontal and (2) vertical.
Horizontal Relationships
A horizontal joint employment relationship exists when two or more employers “each separately employ an employee and are sufficiently associated with or related to each other with respect to the employee.” The focus of a horizontal joint employment analysis is the relationship and association between the two (or more) potential joint employers. For example, two restaurants that share economic ties and management may be considered joint employers of a waitress working for both restaurants.
Horizontal joint-employment is typically found in situations where (1) there is a specific agreement to share the employee’s services; (2) one employer acts directly or indirectly in the interest of another employer regarding the employee; or (3) the employers are deemed to share control of the employee because one employer controls, is controlled by, or is under common control with the other employer.
The degree of control by one entity over the other is evaluated by examining such factors as:
- Does one entity own all or part of the other entity?
- Are there overlapping officers, directors, executives, or managers?
- Is there overlapping control of operations, such as staffing, payroll, advertising, overhead costs?
- Does one potential joint employer supervise the work of the other?
- Is supervision of the employee shared amongst the entities?
- Are the employees of the entities intermingled?
- Do the potential joint employers share clients or customers? and
- Are there any agreements between the potential joint employers.
Vertical Relationships
A vertical joint employment relationship exists where an employee of an “intermediary employer is also employed by another employer.” Unlike horizontal relationships, which look to the relationship between two entities, vertical joint employment analysis looks to the relationship between the employee and the entities who might be considered joint employers of the individual. The Administrative Interpretation sets forth examples of vertical joint employment that include “nurses placed at a hospital by staffing agencies, or warehouse workers whose labor is arranged and overseen by layers of intermediaries between the workers and the owner or operator of the warehouse facility.”
The basic focus of vertical joint employment is the determination of whether the employee is economically dependent on the potential joint employer(s) who benefits from the employee’s work. Consider the security guard at the shopping mall whose work benefits the mall itself as well as the stores within it. Similarly, as the Interpretation notes, the nurse placed at a hospital by a staffing agency certainly can be said to benefit both entities.
The key factors to examine in determining if such a relationship exists include:
- Directing, controlling or supervising the work performed;
- Setting the employment conditions, e.g. discipline/termination, rates of pay, employment policies;
- Permanency and duration of the relationship;
- How integral the employee’s services are to the business;
- Whether the work is performed on the premises of the potential joint employer;
- Whether the potential joint employer performs administrative functions for the employee, such as payroll or providing workers’ compensation insurance, or supplies tools, equipment or materials for the work.
Bottom Line
This could be a huge liability just waiting to happen for an unsuspecting employer, and the fact that this Administrative Interpretation was issued probably means more DOL emphasis in this area in the future.
Employers utilizing independent contractors should make sure that that they have written agreements stating that this is not an employment relationship. Those agreements should spell out the contractor’s duty to provide workers compensation coverage and any other applicable obligations, as well as areas in which the contractor has control over working conditions and administrative functions. In short, clarify the relationship before the DOL does it for you.