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U.S. DOL, Wage and Hour Division, Administrator’s Interpretation (Jan. 20, 2016)

The U.S. Department of Labor’s Wage and Hour Division articulated new guidelines for the Fair Labor Standards Act of 1938 (“FLSA”) regarding joint employment with Administrator’s Interpretation No. 2016-1.

The Department draws a distinction between horizontal joint employment, where an employee has an established or admitted employment relationship two or more entities (working separate hours or performing separate work for each) and the focus of the analysis is on the relationship between the entities, and vertical joint employment, where the employee has a defined employment relationship with one entity (e.g., a staffing agency, subcontractor, or other intermediary employer, including individuals) and courts apply an “economic realities” test to determine whether the employee is economically dependent on the secondary employer (who contracts with the intermediary employer and benefits from the employee’s labor).

In horizontal joint employment, the analysis focuses on the degree of association between, and sharing of control by, the potential joint employers. (The DOL gives the example of an employee who works at restaurants at two separate locations.) Relevant factors include:

  • 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.

In vertical joint employment, the economic realities analysis prevails over the common law control analysis, and the focus is on the employee’s relationship with each entity (e.g., a garment worker employed by a subcontractor to provide a specific function for the garment manufacturer.) The first inquiry is whether the intermediary employer is an employee of the secondary employer: if so, all his/her/its employees are employees of the secondary employer, too; if not, courts must proceed with the analysis. The Second Circuit employs a six-factor test, whereas the Ninth Circuit culls its analysis from four different sources that alternately include a four-, six-, or eight-factor test.[i] Regardless of the test employed, the DOL frowns upon narrowly analyzing the interrelationships of the entities to the employee simply based on the control test.

[i] See Bonnette v. Calif. Health & Welfare Agency, 704 F.3d 1465, 1470 (9th Cir. 1983), Torres-Lopez v. May, 111 F.3d 633, 640-41 (9th Cir. 1997), Perez v. Lantern Light Corp., 2015 WL 3451268 at *17 (W.D. Wash. May 29, 2015), and Chao v. Westside Drywall, Inc., 709 F.supp.2d 1037, 1061-62.