In January 2016, the Administrator of the U.S. Department of Labor’s Wage Hour Division, David Weil, published an “Administrator’s Interpretation” on joint employment under the Fair Labor Standards Act (“FLSA”).[1] Although the Administrator’s Interpretation (“AI”) does not constitute a regulation and is not legally binding, it has nonetheless received a great deal of commentary and analysis. The attention is warranted since the AI appeared to overtly put the DOL’s stamp of approval on the “fissured workplace“ analysis that Weil has long argued has been harmful to the economic prospects of workers. As followers of Weil’s writings know, his focus has particularly been on individuals in lowly paid and menial jobs. Even without the strict force of law, the AI is an indication of the enforcement policies that Wage Hour Division is likely to pursue under Weil.
An intellectual underpinning of Weil’s AI is that modern employment arrangements such as outsourcing, temporary staffing, franchising and the like have been abused to take advantage of workers. In the DOL’s view, such arrangements require a counter-response in the form of more aggressive enforcement of existing employment laws, such as the FLSA. Now that the winter doldrums have passed, it’s worth revisiting just what the AI on joint employment said, and what it means for employers in the cross-hairs of the DOL’s efforts to broaden the definition of joint employment.
“To Suffer or Permit to Work“ – Hearkening Back to the Bad Ol”™ Days of Child Labor, the Wage Hour Administrator Reminds Us that “Employment” is Broadly Construed
In the modern economy, many employers use well recognized and legal mechanisms to limit situations where they directly employ individuals, particularly in non-core business functions. Accordingly, many employers are understandably surprised when the legal steps they have taken to avoid direct employment relationships are challenged as creating a joint employment scenario. Weil’s AI notes that the FLSA’s “suffer or permit” definition of employment, as in to “suffer or permit to work,” is broad, intentionally broader than common law concepts of employment or joint employment. Weil traces the “suffer or permit” standard back to its pre-FLSA roots in preventing child labor abuses, and appears to analogize employment practices of that bygone era to those of modern times. Weil makes the point that the historically broad definition of employment was used to prevent employers from benefitting from child labor if they had an opportunity to stop it, even if the employer was not the direct employer of a child laborer. As Weil states in the AI:
“Thus, the “˜suffer or permit to work”™ standard was designed to expand child labor laws”™ coverage beyond those who controlled the child laborer, counter an employer’s argument that it was unaware that children were working, and prevent employers from using “˜middlemen”™ to evade the laws”™ requirements.”
(January 20, 2016, AI, available at http://www.dol.gov/whd/flsa/Joint_Employment_AI.htm).
No doubt that many employers will find offensive the suggestion that outsourcing janitorial services is akin to child labor. However, at its core, Weil’s AI’s conception of “joint employment” is more a policy objective concerned with addressing the impact of so-called employment fissuring, and is less concerned with respecting the legal forms employers have historically used to create risk barriers between themselves and workers. In fleshing out the details of his AI, Administrator Weil articulated two forms of joint employment – “horizontal” joint employment and “vertical” joint employment.
Horizontal Joint Employment
So-called “horizontal” joint employment may exist when a single employee works for two or more “technically separate but related and overlapping employers.” To use an example from the AI, horizontal joint employment could exist where a waitress worked for two restaurants operated by the same entity. That much seems obvious.
Where matters become murkier are situations where nominally separate businesses have employees in common, but then have some level of “employee sharing” or coordination in the use of these shared employees. Per the FLSA regulations, horizontal joint employment can exist “in situations such as: (1) arrangements between the employers to share or interchange the employee’s services; (2) where one employer acts directly or indirectly in the interest of another employer in relation to the employee; or (3) where the employers are associated “˜with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.”™” See 29 C.F.R 791.2(b). The AI notes that the following considerations are relevant to the question of horizontal joint employment:
- who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
- do the potential joint employers have any overlapping officers, directors, executives, or managers;
- do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
- are the potential joint employers”™ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
- does one potential joint employer supervise the work of the other;
- do the potential joint employers share supervisory authority for the employee;
- do the potential joint employers treat the employees as a pool of employees available to both of them;
- do the potential joint employers share clients or customers; and are there any agreements between the potential joint employers. Lest anyone think that the DOL’s interpretation of joint employment is completely without limit, the AI does concede that mere simultaneous employment does not mean joint employment, if the employers “are acting entirely independently of each other and are completely disassociated, “ 29 C.F.R. 791.2(a).
Vertical Joint Employment
In contrast to horizontal joint employment, vertical joint employment can exist when an employee, hired through an intermediary, is so economically dependent on the end user of the employee’s services (the possible joint employer) that a joint employment situation exists in the eyes of the law. An example might be the janitorial workers, nominally hired through a cleaning company, to clean rooms at a hotel. It is this kind of joint employment, which is at the heart of many modern third-party staffing arrangements, that appears to have generated the greatest amount of “fissured workplace” criticism from WHD Administrator Weil. Interestingly, the AI instructs that the first step in the vertical joint employment analysis is whether the intermediary is actually an employee of the possible joint employer. If it is, all the intermediary’s employees are employees of the joint employer (The AI gives the example of a drywall contractor that is not actually independent from a higher-tier contractor). Multiple commentators have noted the apparent oddity of this part of the AI, arguing that it is unlikely that a separate legal entity would itself be found to be an “employee” of the possible joint employer. On the other hand, and in the more likely scenario that the intermediary is itself independent, the analysis then shifts to an “economic realities” test, rather than a “control” test. Courts have expressed economic realities factors in different ways, but the factors are typically some variation of the following:
- Who directs, controls and supervises the work at issue? The more involvement the possible joint employer has, the more the balance tips toward joint employment.
- Control over employment conditions? The greater the amount of influence – even indirectly – over terms and conditions of employment such as hiring, firing and rate of pay, the greater the likelihood of a finding of joint employment.
- Permanency and duration of relationship? The longer the engagement, the higher the likelihood of joint employment.
- Whether the work is repetitive and rote?
- Whether the work is integral to the possible joint employer’s business?
- Whether the work is performed on the potential joint employer’s premises?
- Whether the work involves administrative functions typically handled by employees?While no one factor is typically dispositive, taken collectively, these factors highlight the factually intensive nature of most disputes over joint employment status. As a result, summary judgment is usually unavailable, raising the risk and cost of any such lawsuit. See Tolentino v. Starwood Hotels & Resorts Worldwide, Inc. (Mo. 2014). Although a case arising under the Missouri Minimum Wage Law (“MMWL”), Tolentino includes substantial of FLSA joint employment principles and represents the Missouri Supreme Court’s current joint employment jurisprudence.
Conclusion
As an Administrator’s Interpretation that is not legally binding on courts, David Weil’s recent pronouncements on joint employment are another viewpoint – albeit an important one – on the issue, but not the final word. Employers should view the AI in the larger legal and political contexts in which policy makers and courts continue efforts to expand the rights of employees, sometimes in ways that run contrary to established employer practices. Even if employers do not take Weil’s AI as the final word on joint employment liability under the FLSA, the AI represents a clear policy statement of an intent to expand employer liability, and also serves as a roadmap to help employers better discern when they may be unwittingly entering into joint employer arrangements.
[1] The AI addressed joint employment under both the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act, but due to the wider application of FLSA to our clients, only the FLSA is discussed here.