On October 20, 2015, the U.S. Department of Labor (DOL) issued new guidelines to determine when companies are considered to be joint employers under the Fair Labor Standards Act (FLSA). Whether an employee has more than one employer is important in determining employees' rights and employers' obligations under FLSA. The DOL noted that it has been increasingly focusing on situations where it is possible that more than one employer is benefitting from an employee's work. In that regard, the DOL has found that businesses are changing their organizational and staffing models by sharing employees or using third-party management companies, independent contractors and staffing agencies and therefore the traditional employment relationship of one employer employing one employee is becoming less prevalent.
Among other things, the new guidelines provide comprehensive guidance on joint employment and emphasize that when two or more employers jointly employ an employee, the employee's hours worked for all of the joint employers during the work week are combined and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and separately liable for compliance with wage and hour laws.
The guidelines focus on the concepts of "horizontal" and "vertical" joint employment. Generally speaking, horizontal joint employment exists where the employee has employment relationships with two or more employers and the employers are "sufficiently associated or related" with respect to the employee and are therefore deemed to be joint employers. This analysis focuses on the relationship of the employers to each other. Examples of horizontal joint employment may include separate restaurants that share economic ties and have the same managers controlling both restaurants, a waitress working for two separate restaurants that are operated by the same entity, or home health care providers that share staff and have common management.
Vertical joint employment exists where the employee has an employment relationship with one employer (typically a staffing agency, sub-contractor or other intermediary employer) and the economic reality shows that he or she is economically dependent on, and thus employed by, another entity involved in the work. Unlike horizontal joint employment cases, where the association between the potential joint employers is the focus, the vertical joint employment analysis instead focuses on the economic realities of the relationship between, for example, the construction worker and the general contractor, to determine whether the employees are economically dependent on both potential joint employers. Other examples of vertical joint employment might be nurses placed at a hospital by staffing agencies; an employer hires laborers through a third party labor contractor; or garment workers employed by a contractor who has contracted with a manufacturer to perform a specific function such as stitching pieces of cloth.
According to the guidelines, whether to apply a horizontal or vertical joint employment analysis (or both) depends upon the circumstances of each case. It is also important to note that the issue of joint employment may be relevant with respect to laws such as the Affordable Care Act and the FMLA. The bottom line is that the DOL's guidelines provide that it will consider joint employment to "achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations."