By Andy Volin
The Department of Labor’s Wage and Hour Division (“WHD”) has issued new guidance on joint employer status. The guidance re-emphasizes that companies that share workers with associated companies, or that subcontract work to other companies, may have compliance responsibility for wage and hour laws. In other words, using a staffing agency or professional employer organization (“PEO”) to provide workers may not protect a company from wage hour liability. Administrator’s Interpretation No. 2016-1, SUBJECT: Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act.
The guidance discusses in depth the concept of joint employment under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). These statutes use a broad “economic realities” test to determine employment status. For example, in a “horizontal joint employment” situation, two or more associated companies each have an employment relationship with a worker. A common scenario is a cook who works at two restaurants that have a common owner. In this situation, the cook’s work hours at each restaurant must be combined for purposes of determining overtime, and both restaurants have liability for the proper payment of wages. In contrast, in a “vertical joint employment” scenario, a worker is employed directly by a contractor but provides services to another company. An example of this situation is a maid service that contracts to clean a hotel. In this context, the economic reality is that the maid is dependent on the hotel for her work, and so, the hotel is a joint employer with the maid service for purposes of compliance with the FLSA.
Employers must examine the nature of their relationships with other companies, such as affiliated businesses that share employees, or staffing agencies. Will the WHD find the companies to be related? Alternatively, are your contracted workers actually dependent on you maintaining the relationship with their direct employer? If so, you should see that they are properly paid, because you may be deemed responsible if they are not.