As Congress considers a bill to change the definition of joint employment under two federal statutes, the Supreme Court is poised to decide whether to take up the issue under the Fair Labor Standards Act, the U.S. Department of Labor has withdrawn administrative guidance issued by the prior administration, and several states have enacted or considered joint employment legislation. In this rapidly evolving legal landscape, companies may want to keep a close eye on a doctrine that can lead to unexpected legal exposure.
Under the concept of joint employment, multiple companies can be considered the employers of a single worker, and thus potentially jointly and severally liable for compliance with employment laws, such as wage-and-hour requirements. Joint employment can occur in two main contexts: “horizontal” joint employment, when a single employee works for two different but related entities, and “vertical” joint employment, which can arise when workers are obtained by an intermediary to work on behalf of some other entity (for example, when a company uses a subcontractor or a staffing agency). Surprisingly, there is no single test or source of law for determining whether companies are joint employers; rather, different tests exist under common law and various federal and state statutes. Even when applying the same statute, courts in different jurisdictions may use diverging standards, making joint employment a tricky and complex issue for companies to navigate.
For example, the federal courts have disagreed about the appropriate formulation of the test for determining joint employment under the FLSA, with different multi-factor tests in use by one or more circuits. In a case decided earlier this year, DirecTV v. Hall, the Fourth Circuit rejected the approach followed by a number of other circuits and applied a new test, holding that courts must focus on the relationship between putative joint employers, not just the relationship between each entity and a worker. Under the Fourth Circuit’s new test, joint employment may be found where two or more companies are “not completely disassociated” with respect to the worker’s work—a standard that could lead to widespread findings of joint employment. This approach could deter companies from using subcontractors or staffing companies or engaging in similar relationships, given the risk that that even indirect influence over a worker’s terms and conditions of work could lead to a finding of joint employment and ensuing liability. DirectTV has filed a cert petition in the case, and a number of business groups have filed amicus briefs urging the high court to grant the petition.
A brief for a group of organizations including the U.S. Chamber of Commerce, the National Association of Manufacturers, and the National Retail Federation highlights the divergence between the Fourth Circuit’s new approach and the tests followed in other circuits, urging the Supreme Court to resolve the circuit split. The brief argues that geographic consistency in the interpretation of the FLSA is particularly important for companies that do business in multiple regions, and contends that the Fourth Circuit erred by misreading a federal regulation in a manner that even the U.S. Department of Labor has disagreed with. Possibly signaling interest in taking up the matter, on September 20, 2017, the Supreme Court asked the respondents to file a response, which is due next month.
In the meantime, developments continue elsewhere. A year and a half after the Department of Labor’s Wage and Hour Division issued an Administrator’s Interpretation under the Obama Administration that took an expansive view of joint employment under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act, new U.S. Secretary of Labor Alexander Acosta recently announced the withdrawal of that interpretation.
A month later, lawmakers in the U.S. House of Representatives introduced the Save Local Business Act (H.R. 3441), which would amend the FLSA and the National Labor Relations Act to provide that a company can be a joint employer only if it “directly, actually, and immediately, and not in a limited and routine manner, exercises significant control over the essential terms and conditions of employment.” On September 13, 2017, the House Committee on Education and the Workforce held a hearing on the bill, which remains pending.
The controversial 2015 Browning-Ferris decision by the National Labor Relations Board, which upended decades-old precedent on the test for joint employment under the NLRA, remains on appeal at the D.C. Circuit. Following that decision, a number of states have enacted or considered legislation to provide that a franchisor is generally not the employer of its franchisees or the employees of those franchisees.
Given the rapid pace of these developments, companies should pay close attention to the changing legal landscape and may wish to consult employment counsel for advice on avoiding liability as joint employers.