News & Insights

Wage PaymentFebruary 11, 2020by Stanton LawJoint Employer 4-Factor Test

by Emily Gaston.

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The U.S. Department of Labor (USDOL) recently published its finalized rule for determining whether a business qualifies as a “joint employer.” If you’re unfamiliar, a joint employer is a secondary business subject to liability under the Fair Labor Standards Act (FLSA).

The rule outlines the approved test for determining joint employment liability for wage and hour matters. To simplify the determination and to produce more consistent outcomes than the earlier Obama-era standard, the agency refashioned a balancing test previously used in several federal courts.

While interpretive variation is inevitable, the new rule could result in fewer businesses classified as joint employers in cases involving minimum wage, overtime, and other similar liability under the federal wage and hour laws. In light of this announcement, businesses may want to reexamine their models to capitalize on the new standard, which should take effect around March 16, 2020.

The Four-Factor Test

The USDOL’s new rule mandates the use of a four-factor balancing test to determine whether a business is a liable joint employer. Overall, the final rule language mirrors the draft proposal released in April 2019. The USDOL confirmed that no single factor will be dispositive in determining joint employer status. Also, the weight given to each factor will vary depending on the circumstances. The four points include whether the entity:

1. Hires or fires the employee

The agency confirmed that this factor is narrow. It is necessary that the entity truly hire or fire the employee and is not based on whether the potential joint employer simply has the power to hire or fire. Requiring an actual exercise of control is intended to provide clarity for employers and encourage and increase innovative business agreements.

2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree

The agency refused to limit the rule’s application to only those employers who maintain day-to-day supervision. As a consolation, the agency added “to a substantial degree” to this factor.

3. Determines the employee’s rate and method of payment

The agency published clarifying examples of the third factor and its application. For example: under this factor, an entity that requires its suppliers to pay its workers a minimum hourly wage higher than the federal minimum wage does not qualify as a joint employer of the supplier’s employees. The agency reasons that a simple wage floor does not equate to significant control over the supplier’s rate or method of pay. That said, this factor could be subjected to a variety of interpretations depending upon the court and the underlying facts.

4. Maintains the employee’s employment records

While the language of this factor may be disappointing to some employers, the agency has confirmed that maintaining employment records alone will not lead to joint employer status. Further, records maintained by the potential joint employer related to compliance with contractual agreements are not considered employment records for the purposes of determining this factor.

Other Factors

By including a final catch-all provision, the USDOL did not abandon the previous alternative tests. The catch-all provision permits that factors not specifically included in the four-part test may still be considered in the joint employment determination. The catch-all provision, however, only applies when the facts are indicative of “significant control” over the terms and conditions of the employee’s work.

Next Steps

The new rule will take effect around March 16, 2020, depending on when the rule is formally published in the Federal Register. Now is the time for you to work with your counsel. Discuss the upcoming changes to see if there are changes that maximize your ability to take advantage of the new joint employment standard. While not perfect, these regulations may enable you to operate with more flexibility and certainty when it comes to wage and hour responsibilities.

We expect the National Labor Relations Board to unveil its own finalized joint employment rule any day now, and the Equal Employment Opportunity Commission will likely follow suit sometime in 2020. We will continue to monitor further developments and provide updates.

Get Joint Employment Answers from a Georgia Employment Law Attorney

If you have questions about how to address a joint employer FLSA claim or how to incorporate this information into your business practices, don’t hesitate to contact the Atlanta business law attorneys at Stanton Law. We are well-versed in joint employment matters and can help you understand your risk and responsibilities as the situation evolves. Visit us online or call the Atlanta employment lawyers at Stanton Law today at 404-531-2341 for help with your business.