In prior posts (Are you a “joint employer” with your temporary staff supplier? The National Labor Relations Board says “Yes,” and ; NLRB poised to relax standard for establishing joint employment; may mean more union issues in franchising and temporary service worker deals ), we wrote about decisions by the National Labor Relations Board (NLRB) that expand the definition of joint employment and broaden potential liability for violations of the National Labor Relations Act. Last month, the U.S. Department of Labor (DOL) joined the NLRB in making joint employment an enforcement priority when it issued an Administrator’s Interpretation and a Fact Sheet relating to joint employment under the Fair Labor Standards Act (FLSA), as well as a Fact Sheet relating to joint employment under the Family Medical Leave Act (FMLA). Although the definition of joint employment under these acts has not changed, the DOL’s interpretation of the definition is expanding, and employers can expect that more of them will be subject to claims under the FLSA and FMLA in joint employment situations.

This shift by the DOL will impact all temporary staffing agencies, professional employer organizations (PEOs) and employers who provide their employees to clients, as well as the employers for whom those workers provide services. When joint employment is found to exist, both companies will be responsible for compliance with employment laws, including the FLSA, the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) and the FMLA.

Joint employment under the FLSA

The DOL sets out two scenarios under which joint employment may occur under the FLSA and the MSPA: (1) where the employee has two or more technically separate but related or associated employers, which the DOL refers to as “horizontal joint employment;” and (2) where one employer provides labor to another employer and the workers are economically dependent on both employers, which the DOL refers to as “vertical joint employment.”

Horizontal joint employment may exist where two technically separate restaurants have the same management and jointly schedule an employee’s work hours. Not all factors need be present for joint employment to exist, but the following factors will be considered:

  • Who owns or operates the possible joint employers?
  • Do the employers have any overlapping officers, directors, executives, or managers?
  • Do the employers share control over operations?
  • Are the operations of the employers intermingled?
  • Does one employer supervise the work of the other?
  • Do the employers share supervisory authority over the employee?
  • Do the employers treat the employees as a pool of workers available to both of them?
  • Do they share clients or customers?
  • Are there any agreements between the employers?

Vertical joint employment may exist when a staffing agency or PEO provides workers to an employer. In such a situation, the employee receives his or her compensation from one entity, but his or her daily activities are controlled by a second entity, and the employee is economically dependent on both. However, vertical joint employment can exist even when the second entity exercises little control over the worker. An economic realities test will be applied and the following factors, with no one factor being determinative, will be considered:

  • Does the other employer direct, control, or supervise (even indirectly) the work?
  • Does the other employer have the power (even indirectly) to hire or fire the employee, change employment conditions, or determine the rate and method of pay?
  • How permanent or lengthy is the relationship between the employee and the other employer?
  • Does the employee perform repetitive work or work requiring little skill?
  • Is the employee’s work integral to the other employer’s business?
  • Is the work performed on the other employer’s premises?
  • Does the other employer perform functions for the employee typically performed by employers, such as handling payroll or providing tools, equipment or workers’ compensation insurance; or in agriculture, providing housing or transportation?

If joint employment of either type exists, both employers are individually and jointly responsible for compliance with the FLSA. Both employers must ensure that the employee is paid at least the minimum wage for all hours worked and overtime for any hours worked over forty in a workweek. All hours worked for all joint employers must be aggregated for the purposes of determining an employee’s overtime pay.

Joint employment under the FMLA

The joint employment analysis under the FMLA is the same as the one described above for the FLSA. However unlike under the FLSA, even if joint employment is found, the responsibilities of the “primary” and “secondary” employers differ. In a typical temporary staffing situation, the agency is most commonly the primary employer. The following factors should be considered when evaluating which employer is primary and which is secondary:

  • Who has authority to hire and fire, and to place or assign work to the employee?
  • Who decides how, when and the amount that the employee is paid?
  • Who provides the employee’s leave or other employment benefits?

In determining whether an employer is covered by the FMLA and whether an employee is eligible for leave under the FMLA, employees who are jointly employed must be counted by both employers—regardless of whether the employees appear on the employer’s payroll. The employee’s worksite is the primary employer’s office from which the employee is assigned or to which the employee reports. However, if the employee has worked at the secondary employer’s facility for a year or more, then the employee’s worksite is the secondary employer’s facility.

For purposes of FMLA compliance, the primary employer will have all of the usual employer responsibilities. The secondary employer has responsibilities as well. In addition to counting the worker for purposes of making coverage and eligibility determinations, the secondary employer may not retaliate or discriminate against the worker for taking FMLA leave and may not interfere with the worker’s use of FMLA leave. Secondary employers must also keep basic payroll and identifying data for the worker.

Bottom line

Employers can no longer avoid liability under the FLSA or FMLA by utilizing a staffing agency or PEO to obtain workers. More often than not, the employer will be found to be a joint employer with the agency, and therefore be subject to all or many of the laws’ requirements. Employers should work closely with the agency or PEO to ensure that the worker is being paid appropriately and is receiving his or her FMLA entitlement. Employers that have fewer than fifty employees—and therefore believe themselves to not be FMLA-covered—should be aware that workers obtained from staffing agencies will almost certainly be counted toward the fifty employee coverage threshold.