U.S. Department of Labor Proposes Rules on Joint Employer Status under FLSA

The U.S. Department of Labor issued proposed rules on April 1, 2019, that are intended to revise and clarify the responsibilities of employers and joint employers in joint employer arrangements. These regulations are likely to be especially relevant to franchisors and franchisees of private duty agencies. The “heart” of the proposed regulations is a four-factor test to determine whether joint employers have joint and severable liability for employees’ wages.

The four-factor test to determine whether potential joint employers actually exercise certain powers and, therefore, are joint employers whether they:

  • Hire or fire employees;
  • Supervise and control employees’ work schedules or conditions of employment;
  • Determine employees’ rate and method of payment; and
  • Maintain employees’ employment records.

Major features of the proposed rule include:

  • Eliminates the “not completely disassociated” standard for situations in which employees work one set of hours for an employer that simultaneously benefits another person and replacing it with the above standard.
  • Clarifies that additional factors may be used to determine joint employer status, but only if they are indicative of whether potential joint employers are exercising significant control over the terms and conditions of employees’ work or acting directly or indirectly in the interest of employers in relation to employees.
  • Also clarifies that employees’ “economic dependence” on potential joint employers does not determine joint employers’ liability under the FLSA and identifies three examples of “economic dependence” factors that are not relevant to analysis of joint employer relationships including, but not limited to, whether employees: (1) are in specialty jobs or jobs that require special skill, initiative, judgement or foresight; (2) have the opportunity for profit or loss based on managerial skill; and (3) invest in equipment or materials required for work or employment of helpers.
  • Confirms that the ability, power, or reserved contractual right to act in relation to employees is not relevant to determine joint employer status.
  • Clarifies that indirect action in relation to employees may establish joint employer status.
  • Explains that the FLSA Section 3(d) only, not section (3)(e)(1) or 3(g) determines joint employer status.
  • Clarifies that an entity’s business model, such as operating as a franchisor, does not make joint employer status more or less likely.
  • Explains that certain business activities, such as sample employee handbooks provided to franchisees, do not make joint employer status more or less likely.
  • Emphasizes that certain business agreements, such as requiring employers to institute workplace safety measures, wage floors or sexual harassment policies, for example, do not make joint employment status more or less likely.

The proposed rules also include a number of examples intended demonstrate how the proposed rules would be applied. For example: Franchisor A is a global hospitality brand with several thousand hotels under franchise agreements. Franchisee B owns one of these hotels and is a licensee of A’s brand. In addition, A provides B with a sample employment application, a sample employee handbook, and other forms and documents for use in operating the franchise. The licensing agreement is an industry-standard document explaining that B is solely responsible for all day-to-day operations, including hiring and firing of employees, setting the rate and method of pay, maintaining records, and supervising and controlling conditions of employment. Is A a joint employer of B’s employees?

Application: Under these facts, A is not a joint employer of B’s employees. A does not exercise direct or indirect control over B’s employees. Providing samples, forms, and documents does not amount to direct or indirect control over B’s employees that would establish joint liability.

If finalized, these regulations are likely to be “good news” for franchisors of private duty agencies and others in the home care industry. Providers should weigh in on these proposed rules to help ensure that they are finalized.

Southern Web SupportU.S. Department of Labor Proposes Rules on Joint Employer Status under FLSA
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