Hunton Employment & Labor Perspectives

The Department of Labor earlier this month proposed employer-friendly amendments to its rules regarding joint employer liability under the Fair Labor Standards Act.

In its Notice of Proposed Rulemaking, the DOL proposed the adoption of a four-factor test to assess joint employer status under the FLSA.  The test would consider an employer’s actual exercise of significant control over the terms and conditions of an employee’s work, rather than attenuated control or contractually reserved control that goes unexercised.

The DOL modeled its rule after the test established in Bonnette v. California Health & Welfare Agency, a Ninth Circuit decision adopted by many circuit courts as the proper analysis to determine joint employer liability under the FLSA.  The four relevant factors are whether the putative joint employer: (1) hires or fires the employee; (2) supervises or controls the employee’s work schedule or condition of employment; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records.

Consistent with its theme of emphasizing the actual exercise of control, rather than the reservation of potential control, the proposed rule modifies Bonnette’s first factor to ask whether the putative employer actually hires or fires the employee, whereas Bonnette considered whether the employer had the power to hire or fire.

The proposed rule would affect employers and businesses that may be liable for wage and hour violations, such as failure to pay overtime.  If an employer is deemed a “joint employer” under the FLSA, then it is jointly and severally liable for such violations.

In addition to codifying the modified Bonnette test, the proposed rule also outlines explicitly certain factors that the DOL considers irrelevant to joint employer status.  For example, an employer’s business model (i.e. contractor-subcontractor or franchisor-franchisee) would not factor into the joint employer determination under the proposed rule.  Also, attenuated forms of indirect control over an employee’s terms and conditions of employment – like requiring a business contract partner to train its employees on sexual harassment or providing a franchisee with a sample employee handbook – would be deemed irrelevant.

The proposed rule also includes nine examples of common business-to-business interactions or agreements that affect employees and explains how to apply to Bonnette test to each scenario.  The examples illustrate the DOL’s goal that the proposed rule allow businesses to contract among each other without facing joint employer liability unless one of the employer actually exercises meaningful control over the working conditions of the employees.

The Proposed Rule is subject to notice and comment.  Written comments regarding the rule may be submitted to the DOL on or before June 10, 2019.