The U.S. Department of Labor has released a final ruling on what constitutes a joint employer relationship when it comes to liability for wage and hour matters. In a wage and hour investigation, a four-factor balancing test will be used by courts to determine whether two entities are considered joint employers. The four-factor test will assess whether the company:
1. Hires or fires employees
2. Supervises and controls employees’ work schedules or conditions of employment to a substantial degree
3. Determines employees’ rate and method of payment
4. Maintains employment records
The important thing to know here is that the courts only take into consideration the level of control that a company exerts on employees, not its potential to control them. For example, the power to decide whether employees are hired or fired alone would not be a factor, but the actual act of deciding who is hired and fired would be. Even then, the weight this factor holds in determining the relationship is up to the discretion of the courts.
Good news for employers is that factors such as providing employee handbooks, participating in a benefit or retirement plan with another employer, and having a franchisor business model, are not considered when determining whether a company has joint-employer liability. The reason being that these factors allow companies to assist each other without one making employment decisions for the other. Per the DOL, “to make joint-employer status more or less likely, the potential joint employer would have to not only provide such resources but would also have to somehow exercise control over the employees in relation to those resources.”
Before the ruling becomes effective on March 16th, 2020, employers should evaluate their current relationships to see if any could be challenged as “joint employer” relationships when it comes to wage and hour issues under the FLSA. If a company makes employment related decisions for employees of any other business, it is possible that they could be liable for any wage and hour issues that arise. If companies are unsure about any relationships they have, they should seek counsel with their attorney.