On October 5, 2021, the U.S. Department of Labor (DOL)’s rescission of the prior administration’s March 2020 Joint Employer Rule under the Fair Labor Standards Act went into effect. In short, the rescission essentially increases the likelihood that an employer could be determined to a joint employer, which in turn expands potential liability. So, what exactly does this mean for employers in California and across the country?
What is Joint Employment?
As an employer, you are probably aware that the FLSA sets the standards for wage and hour law across the country, but what happens when an employee has more than one employer? Although the FLSA does not specifically define “joint employment,” the DOL has provided guidance on the issue since 1939. In certain cases, more than one company may have joint responsibility for an employee.
Joint employment may exist when an employee’s performance or work benefits two separate companies and is associated in some way. A classic example is work done through a staffing agency, subcontractor, or other intermediary employer. If an employer is found to be a joint employer, it may be jointly and severally liable for the employee, and the hours worked by the employee for each company would be aggregate when considering overtime pay and other potential FLSA violations.
Why the change?
The now-rescinded 2020 Joint Employer Rule would have provided employers with a more predictable test for joint employment, with an emphasis on control. However, the new administration’s DOL took issue with the rule because it found the rule too narrow and inconsistent with approaches used by the courts.
What this means going forward
Without the 2020 Joint Employer Rule, the issue of joint employment under the FLSA will be assessed under a variety of multifactor tests, the specifics of which will turn on the jurisdiction in which an employer is located. For California employers, however, this change will be of little significance – most wage claims in California are brought under state law. California uses three very broad, employee-friendly tests for determining joint employment: the entity must (1) “exercise control” over the individual’s “wages, hours, or working conditions”; (2) “suffer or permit” the individual to work; or (3) “engage” the individual, creating a common law employment relationship.
With respect to joint employer interpretation under the FLSA, the DOL has not yet proposed any replacement guidance in light of the rescission, leading to less certainty for employers as to when they may be jointly liable under the FLSA. As a result, employers should stay alert to changes and consult with counsel to understand their obligations and exposure as potential joint employers under the FLSA and under California law.
TOPIC: Change to rules on joint employers.