The Joint-Employer Rule involves many small businesses who outsource certain areas of their business. As examples this outsourcing often includes services such as janitorial, security, inspections, and product delivery. In addition, there are frequently instances employees are hired through a temporary agency until they are placed with the company.
On January 12, 2020, The U.S. Department of Labor (DOL) announced a final rule narrowing the definition of "joint employer" under the Fair Labor Standards Act (FLSA) and providing clarity to businesses about franchise and contractor relationships.
In its first significant update to the joint-employer rule in more than 60 years, the DOL created a four-factor balancing test to determine whether businesses share liability for federal FLSA wage and hour violations. The department will consider whether a business:
Hires and fires employees.
Supervises and controls employees' work schedules or conditions of employment to a substantial degree.
Determines employees' rate and method of payment.
Maintains employment records.
Reserving the right to control the employee's working conditions would not be enough to show that a business is a joint employer; the company would have to actually exert that control. So businesses likely won't be deemed joint employers if they stay out of the day-to-day employment decisions of their contractors and franchisees.
The changes in this final rule break down barriers that keep companies from constructively overseeing, guiding and helping their outsourcing business partners.
The final rule will take effect March 16.
In addition to the four-factor balancing test, the final rule clarifies that an employee's "economic dependence" on a company doesn't determine whether that company is a joint employer under the FLSA.
The rule clarifies that the following factors don't influence the joint-employer analysis:
Having a franchiser business model.
Providing a sample employee handbook to a franchisee.
Allowing an employer to operate a facility on the company's grounds.
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