By: Michael Hill
We have previously discussed the decision of the Deparment of Labor to narrow the definition of “independent contractor” so that more workers can be deemed “employees” and thus subject to federal wage and hour laws. On a similar theme, the DOL’s Wage and Hour Division recently issued an Administrator’s Interpretation, in which it seeks to expand the concept of “joint employment” under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). This expansion is significant because, under the FLSA and MSPA, when a non-exempt employee is jointly employed by one or more employers, the weekly hours worked for each employer are aggregated for determining when overtime is due. And each joint employer is individually responsible for all wages due that employee. For this reason, it is important for businesses to have a clear understanding of the concept of “joint employment” and whether it applies to them.
The Administrator’s Interpretation announces that the DOL will target two general types of joint employment: horizontal joint employment and vertical joint employment.
Horizontal joint employment is when two or more employers each separately employ a worker, and these employers are sufficiently related to each other with respect to that worker. The focus is on the relationship between the employers. For example, if two separate home healthcare providers have common management and share some staff, they may be joint employers of any employee who works for both companies. Similarly, if farmworkers pick produce at two separate orchards, and the growers of those orchards have an arrangement to share farmworkers, then both growers may be joint employers of those farmworkers.
Vertical joint employment, on the other hand, exists when an employee formally works for one employer but his job is economically dependent on a separate company or entity. For instance, when a staffing agency provides nurses to a hospital that then supervises and directs those nurses, both the staffing agency and the hospital may be joint employers of those nurses. The focus here is on the “economic realities” of the employment relationship, i.e., whether the nurses are economically dependent on the hospital even though it is not formally their employer.
Because joint employers are each individually responsible for all of their employees’ wages, the consequences of misunderstanding could be costly. For example, if a farmworker in the example above worked 25 hours in a week at one orchard, and another 25 hours that same week at the other orchard, and if the growers of both orchards were found to be joint employers, then the farmworker’s hours may be aggregated for the week, entitling him to 10 hours of overtime. But if each grower instead paid the farmworker only for the 25 hours he worked at the straight-time rate, he would be missing the extra half-time rate for the 10 hours over 40 that he worked. Under the Administrator’s Interpretation, either grower could be held fully liable for those 10 hours of unpaid overtime. (Of course, the farmworker would not be entitled to collect the full amount from each grower; that would be a double recovery.)
In light of the DOL’s new guidance on joint employment, employers should review their labor arrangements to be sure they are compliant with the FLSA and MSPA. If the examples used in the Administrator’s Interpretation give any indication, staffing agencies and employers in the construction, agriculture, warehouse, hospitality, and home healthcare industries may have particular cause for alarm.