The USDOL has proposed a new cut-down (watered down?) test for determining when entities are a joint employer. Such a finding leads to the aggregating of employee hours which are worked at both places as well as rendering the entities jointly liable for wage-hour (e.g. overtime) violations.
The focus of the new proposal is a four-factor test to determine whether two (or more) businesses qualify as a joint employer: The power to hire and fire, the ability to control work schedules; the determination of rates of pay; and, the maintenance of employment records (e.g. time sheets, payroll) are the crucial factors. The test emanates from a three-decade old federal California decision where these factors (save for hiring and firing) were first enunciated.
One commentator, Ryan Glasgow, opines that “the new four-factor test contained in the proposed rule is intended to limit joint-employer status to those situations where the putative joint employer acts directly or indirectly in the interest of the employer in relation to the employee.”
Advocates on both sides attacked or vigorously supported the new proposal. For example, a spokesman at the International Franchise Association stated that the DOL can now “undo one of the most harmful economic regulations from the past administration and replace it with a rule that creates certainty” for all franchise businesses. An employee advocate lamented that the new rule would allow larger entities to escape liability merely by contracting out work to “smaller and poorly capitalized” businesses.
There is also the possibility, according to a plaintiff side attorney, that the new rule might cause businesses to contract with other entities and pressure those contractors not to comply with all labor laws, e.g. overtime. This lawyer, Michael Rubin, stated that “the consequence if a company can’t be held liable for violations that occur, say, at a contractor’s workplace is that there’ll be more contracting out, more violations committed by undercapitalized contractors or franchisees because the company that pulls the economic strings recognizes that it can cut labor costs by not only contracting out the direct employment, but contracting out legal liability.
The Takeaway
Yes, there is a chance that some employers might contract out their obligations for FLSA compliance. Frankly, I do not believe that is the big danger plaintiff side lawyers might be crying about. I have found, over thirty years of practicing labor and employment law, that the vast majority of employers are good faith, well-intentioned entities who want to comply with the law but there is a lot of gray in the provisions of the FLSA, especially on the doctrine of what is/is not a joint employer.
Maybe this new proposal is a ray of sunlight into this dark cavern…
