BlogLine

Employers Watch Out: New DOL Rule May Limit Joint Employer Liability

1/27/20

By: Janet Barringer

New Rule
A new rule goes into effect March 16, 2020, per the Department of Labor (DOL), as to when a “joint employer” is equally liable under federal wage and hour laws.  This new rule is an attempt to limit “joint employer” liability.  The determination as to whether a scenario is one of joint employment turns on a new four-factor test.
The test asks DOES THE BUSINESS IN QUESTION:

  1. Hire or terminate the employee, which is not to be confused with the “power” to hire or fire the employee;
  2. Supervise and control the employee’s schedule or conditions of employment to a substantial degree;
  3. Determine the employee’s rates and methods of payment; and
  4. Maintain the employee’s personnel/employment records.

According to the DOL, no single factor is dispositive in determining joint-employer status.  Instead, the weight given to each of the four factors depends on the circumstances at hand.  Most likely, Courts will decide the balancing test among these four factors, as the DOL has provided little guidance on how to do so.
Beware of Catch-all Provision
Employers should be aware there is an alternative “catch-all” provision in the DOL rule which states factors not specifically included in the four-part test may be considered in the determination of whether a joint employment relationship exists.  However, this catch-all provision only applies if the potential joint employer exercises “significant control” over the terms and conditions of the employee’s work.  The practical application of this catch-all provision remains to be seen, and will likely depend on Courts’ interpretation.
Employers Excluded under New Rule
The DOL helpfully included in its guidance several common business arrangements not factored into its analysis of a potential joint employment relationship.  These include the following factors:

  1. Existence of a franchisee/franchisor relationship, including entering into a brand and supply agreement;
  2. An unexercised right to control the employee’s terms and conditions of employment. Standard contractual language reserving a right to act will not be enough to establish a joint employment arrangement under the four-factor test;
  3. The employee’s economic dependence on the potential joint employer, including whether the employee is in a specialized position or has the opportunity to make a profit or incur a loss based on performance;
  4. A potential joint employer’s contractual agreements requiring the employer to comply with specific legal obligations or meet certain standards to protect the health and safety of its employees, i.e., compliance with wage and hour laws or maintenance of sexual harassment policies;
  5. Management of quality control standards implemented by the potential joint employer, such as standards ensuring the consistent quality of products;
  6. Whether the potential joint employer provides standardized human resources forms, including employee handbook templates;
  7. A potential joint employer’s offer of health or retirement plans to the employer or participation in such plans with the employer; or
  8. Joint participation in an apprenticeship program with the employer.

Safeguards for Employers to Take Before March 16, 2020
Before the new rule for joint employer goes into effect on March 16, 2020, businesses should take account of their procedures to confirm they are protected under the rule’s four-factor test. Employers should also consider working with their counsel to determine, and create, if necessary, business changes to maximize their ability in taking advantage of the new joint employment standard.  The updated rule may provide more flexibility and certainty when it comes to employers’ wage and hour responsibilities.
If you have any questions or would like more information, please contact Janet Barringer in the National Labor & Employment Practice Section at jbarringer@fmglaw.com.

Share

Save Print