Department of Labor Releases Final Rule on Joint Employment

The United States Department of Labor has released a final rule regarding joint employer status. Joint employers are a source of great confusion in the employment law sphere, and the DOL has attempted to simplify these determinations and reduce the instances where an outside entity unintentionally assumes liability for an employee due to the company’s actions. 

The Old Standard

When does an entity involve itself with an employer-employee relationship enough that it is considered a second employer? Before this Final Rule, the law surrounding joint employers was overbroad and confusing. Any entity “acting directly or indirectly in the interest of an employer” in a manner not “completely dissociated” with the employees could potential be considered a joint employer of those employees. This vague definition left many third party entities (like temp agencies and legal counsel) confused about where they stood in relation to the employers they interact with. Responding to this issue, the DOL has decided to implement a new standard for determining joint employer status. 

The Joint Employer Balancing Test

The Department of Labor will institute a Four-Factor Balancing Test to determine the existence of a joint employer relationship. 

1. Does the potential joint employer have the power to hire or fire employees of the employer?

2. Does the potential joint employer control the employee’s work schedule or conditions of employment to a substantial degree?

a. This refers to actual control over employment: reserved, but unrealized, potential for control is not sufficient satisfy this standard without some concrete action

b. Examples of indirect employee control is setting a schedule and directing the employer to fire the employee (a recommendation is usually not enough)

3. Does the potential joint employer have a say in the employee’s rate and method of payment? 

4. Does the potential joint employer maintain the employee’s employment records? 

a. “Employment records” are only relevant to this determination if they contain information relating to Factors 1-3 on this list.

Not all factors must be present in a situation for a joint employer relationship to exist, but all factors will be weighed. The DOL has already stated that Factor 4 (the employment records) is, absent other evidence, not enough on its own to create a joint employer relationship.  Additional factors can be considered, but are not as dis positive. One major theme to be aware of is whether or not the potential joint employer is exercising significant control over the terms and conditions of the employee’s work. 

In its analysis of the four factor balancing test, the DOL also mentioned some circumstances that would not affect the calculation of a joint employer relationship:

- Furnishing handbooks or documents recommended or required by law to an employer;

- Providing resources for the purpose of maintaining a beneficial business relationship;

- Assisting the employer in compliance with its health, safety, and legal obligations;

- Monitoring of an employer’s employees for the purpose of ensuring the consistent quality of a work product (assuming no direct contact with the employees).

What’s Next? 

Along with these clarifications, the DOL will promulgate several examples of what does and does not constitute a joint employer relationship. These examples are intended to mirror real situations and have been refined through comments from those in such situations. Employers can use that list for guidance should they find themselves in similar situations. However, even if the examples do not apply, the added clarity given by the DOL should give potential employers a reasonable idea of what behaviors will and will not trigger additional liabilities. Balancing tests are a common legal tool and often leave room for ambiguity, but these factors are specific enough that most companies and individuals can use them to form a professional “line” that they cannot cross when they offer goods and services to employers. 

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