Joint Employer Status Under the Fair Labor Standards Act
| Published date | 09 April 2019 |
| Citation | 84 FR 14043 |
| Record Number | 2019-06500 |
| Section | Proposed rules |
| Court | Labor Department,Wage And Hour Division |
Federal Register, Volume 84 Issue 68 (Tuesday, April 9, 2019)
[Federal Register Volume 84, Number 68 (Tuesday, April 9, 2019)]
[Proposed Rules]
[Pages 14043-14061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06500]
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Part 791
RIN 1235-AA26
Joint Employer Status Under the Fair Labor Standards Act
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Notice of proposed rulemaking and request for comments.
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SUMMARY: This proposed rulemaking is intended to update and clarify the
Department of Labor's (Department) interpretation of joint employer
status under the Fair Labor Standards Act (FLSA or Act), which has not
been significantly revised in over 60 years. The proposed changes are
designed to promote certainty for employers and employees, reduce
litigation, promote greater uniformity among court decisions, and
encourage innovation in the economy.
DATES: Submit written comments on or before June 10, 2019.
ADDRESSES: You may submit comments, identified by Regulatory
Information Number (RIN) 1235-AA26, by either of the following methods:
Electronic Comments: Submit comments through the Federal eRulemaking
Portal at http://www.regulations.gov. Follow the instructions for
submitting comments. Mail: Address written submissions to Division of
Regulations, Legislation, and Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
Washington, DC 20210. Instructions: Please submit only one copy of your
comments by only one method. All
[[Page 14044]]
submissions must include the agency name and RIN, identified above, for
this rulemaking. Please be advised that comments received will become a
matter of public record and will be posted without change to http://www.regulations.gov, including any personal information provided. All
comments must be received by 11:59 p.m. on the date indicated for
consideration in this rulemaking. Commenters should transmit comments
early to ensure timely receipt prior to the close of the comment
period, as the Department continues to experience delays in the receipt
of mail. Submit only one copy of your comments by only one method.
Docket: For access to the docket to read background documents or
comments, go to the Federal eRulemaking Portal at http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Melissa Smith, Director of the
Division of Regulations, Legislation, and Interpretation, Wage and Hour
Division, U.S. Department of Labor, Room S-3502, 200 Constitution
Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not
a toll-free number). Copies of this Notice of Proposed Rulemaking
(NPRM) may be obtained in alternative formats (Large Print, Audio Tape,
or Disc), upon request, by calling (202) 693-0675 (this is not a toll-
free number). TTY/TDD callers may dial toll-free 1-877-889-5627 to
obtain information or request materials in alternative formats.
Questions of interpretation and/or enforcement of the agency's
regulations may be directed to the nearest WHD district office. Locate
the nearest office by calling WHD's toll-free help line at (866) 4US-
WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website for a nationwide listing of WHD
district and area offices at http://www.dol.gov/whd/america2.htm.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
The FLSA requires covered employers to pay nonexempt employees at
least the federal minimum wage for all hours worked and overtime for
all hours worked over 40 in a workweek.\1\ Although the FLSA does not
use the term ``joint employer,'' the Act contemplates situations where
additional persons \2\ are jointly and severally liable with the
employer for the employee's wages due under the Act.
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\1\ See 29 U.S.C. 206(a), 207(a).
\2\ Under the Act, ``person'' means ``any individual,
partnership, association, corporation, business trust, legal
representative, or any organized group of persons.'' 29 U.S.C.
203(a).
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Over 60 years ago, in 1958, the Department promulgated a
regulation, codified at part 791 of Title 29, Code of Federal
Regulations (CFR), interpreting joint employer status under the Act.\3\
The Department has not meaningfully revised this regulation since its
promulgation. Under part 791, multiple persons can be joint employers
of an employee if they are ``not completely disassociated'' with
respect to the employment of the employee.\4\ Part 791 does not
adequately explain what it means to be ``not completely disassociated''
in one of the joint employer scenarios--where the employer suffers,
permits, or otherwise employs the employee to work one set of hours in
a workweek, and that work simultaneously benefits another person. In
that scenario, the employer and the other person are almost never
``completely disassociated,'' and the real question is not whether they
are associated but whether the other person's actions in relation to
the employee merit joint and several liability under the Act.
Additional guidance could therefore be helpful. Accordingly, the
Department proposes to revise part 791 to provide additional guidance
for determining whether the other person is a joint employer in that
scenario.\5\
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\3\ See 23 FR 5905 (Aug. 5, 1958).
\4\ 29 CFR 791.2(a).
\5\ The Department's current regulation identifies two distinct
joint employer scenarios, which is consistent with its enforcement
experience. See 29 CFR 791.2(b) (one scenario is ``[w]here the
employee performs work which simultaneously benefits two or more
employers''; the other is where the employee ``works for two or more
employers at different times during the workweek'').
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The Department proposes that if an employee has an employer who
suffers, permits, or otherwise employs the employee to work and another
person simultaneously benefits from that work, the other person is the
employee's joint employer under the Act for those hours worked only if
that person is acting directly or indirectly in the interest of the
employer in relation to the employee.\6\ To make that determination
simpler and more consistent, the Department proposes to adopt a four-
factor balancing test derived (with one modification) from Bonnette v.
California Health & Welfare Agency.\7\ A plurality of circuit courts
use or incorporate Bonnette's factors in their joint-employer test. The
Department's proposed test would assess whether the potential joint
employer:
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\6\ See 29 U.S.C. 203(d) (`` `Employer' includes any person
acting directly or indirectly in the interest of an employer in
relation to an employee. . . .'').
\7\ 704 F.2d 1465 (9th Cir. 1983), abrogated on other grounds,
Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985).
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Hires or fires the employee;
Supervises and controls the employee's work schedule or
conditions of employment;
Determines the employee's rate and method of payment; and
Maintains the employee's employment records.
These factors are consistent with section 3(d) of the FLSA, which
defines an ``employer'' to ``include[ ] any person acting directly or
indirectly in the interest of an employer in relation to an employee,''
29 U.S.C. 203(d), and with Supreme Court precedent. They are clear and
easy to understand. They can be used across a wide variety of contexts.
And they are highly probative of the ultimate inquiry in determining
joint employer status: Whether a potential joint employer, as a matter
of economic reality, actually exercises sufficient control over an
employee to qualify as a joint employer under the Act.
As mentioned above, the Department proposes to modify the first
Bonnette factor to explain that a person's ability, power, or reserved
contractual right to act with respect to the employee's terms and
conditions of employment would not be relevant to that person's joint
employer status under the Act. Only actions taken with respect to the
employee's terms and conditions of employment, rather than the
theoretical ability to do so under a contract, are relevant to joint
employer status under the Act. Requiring the actual exercise of power
ensures that the four-factor test is consistent with the provision of
3(d) that determines joint employer status, which requires an employer
to be ``acting . . . in relation to an employee.'' \8\
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\8\ 29 U.S.C. 203(d).
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The Department also proposes to explain that additional factors may
be relevant to this joint employer analysis, but only if they are
indicia of whether the potential joint employer is:
Exercising significant control over the terms and
conditions of the employee's work; or
Otherwise acting directly or indirectly in the interest of
the employer in relation to the employee.
The Department further proposes to explain that, in determining the
economic reality of the potential joint employer's status under the
Act, whether an employee is economically dependent on the potential
joint
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employer is not relevant.\9\ As such, the Department proposes to
identify certain ``economic dependence'' factors that are not relevant
to the joint employer analysis. Those factors would include, but would
not be limited to, whether the employee:
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\9\ As explained below, economic dependence only measures
whether a worker is an employee under the Act or an independent
contractor.
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Is in a specialty job or a job otherwise requiring special
skill, initiative, judgment, or foresight;
Has the opportunity for profit or loss based on his or her
managerial skill; and
Invests in equipment or materials required for work or for
the employment of helpers.
In addition, the Department's proposal would note that a joint
employer may be any ``person'' as defined by the Act, which includes
``any organized group of persons.'' \10\ It would also explain that a
person's business model (such as a franchise model), certain business
practices (such as allowing an employer to operate a store on the
person's premises or participating in an association health or
retirement plan), and certain business agreements (such as requiring an
employer in a business contract to institute sexual harassment
policies), do not make joint employer status more or less likely under
the Act.
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\10\ 29 U.S.C. 203(a).
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In the other joint employer scenario under the Act--where multiple
employers suffer, permit, or otherwise employ the employee to work
separate sets of hours in the same workweek--the Department is
proposing only non-substantive revisions that better reflect the
Department's longstanding practice. Part 791's current focus on the
association between the potential joint employers is useful for
determining joint employer status in this scenario. If the multiple
employers are joint employers in this scenario, then the employee's
separate hours worked for them in the workweek are aggregated for
purposes of complying with the Act's overtime pay requirement.
Finally, the Department's proposed rule would include several other
provisions. First, it would reiterate that a person who is a joint
employer is jointly and severally liable with the employer and any
other joint employers for all wages due to the employee under the
Act.\11\ Second, it would provide a number of illustrative examples
that apply the Department's proposed joint employer rule. Third, it
would contain a severability provision.
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\11\ This means that for every workweek that they are joint
employers, the employer and all joint employers are each fully
responsible for the entire amount of minimum wages and overtime pay
due to the employee in that workweek. If one of them is unable or
unwilling to pay, the others are responsible for the full amount
owed.
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Employee earnings and overtime pay under the Act would not be
affected by the proposed rule. Employers would remain obligated to
comply with the FLSA in all respects, including its minimum-wage and
overtime provisions.
The Department believes that all of the above proposals would be
consistent with the text of the Act and supported by judicial
precedent. The Department further believes that these proposals would
clarify the scope of joint employer status under the Act, thereby
reducing litigation and compliance costs, easing administration of the
law, and offering guidance to courts, which may result in greater
uniformity among court decisions.
This proposed rule is expected to be an Executive Order (E.O.)
13771 deregulatory action. Discussion of the estimated reduced burdens
and cost savings of this proposed rule can be found in the NPRM's
economic analysis. The Department welcomes comments from the public on
any aspect of this NPRM.
II. Background
The FLSA requires covered employers to pay their employees at least
the federal minimum wage for every hour worked and overtime for every
hour worked over 40 in a workweek.\12\ The FLSA defines the term
``employee'' in section 3(e)(1) to mean ``any individual employed by an
employer,'' \13\ and defines the term ``employ'' to include ``to suffer
or permit to work.'' \14\ ``Employer'' is defined in section 3(d) to
``include[ ] any person acting directly or indirectly in the interest
of an employer in relation to an employee.'' \15\
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\12\ See 29 U.S.C. 206(a), 207(a).
\13\ 29 U.S.C. 203(e)(1).
\14\ 29 U.S.C. 203(g).
\15\ 29 U.S.C. 203(d).
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One year after the FLSA's enactment, in July 1939, WHD issued
Interpretative Bulletin No. 13 addressing, among other topics, whether
two or more companies could be jointly and severally liable for a
single employee's hours worked under the Act.\16\ The Bulletin
acknowledged the possibility of joint employer liability and provided
an example where two companies arranged ``to employ a common watchman''
who had ``the duty of watching the property of both companies
concurrently for a specified number of hours each night.'' \17\ The
Bulletin concluded that the companies ``are not each required to pay
the minimum rate required under the statute for all hours worked by the
watchman . . . but . . . should be considered as a joint employer for
purposes of the [A]ct.'' \18\
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\16\ See Interpretative Bulletin No. 13, ``Hours Worked:
Determination of Hours for Which Employees are Entitled to
Compensation Under the Fair Labor Standards Act of 1938,'' ]] 16-17.
In October 1939 and October 1940, the Department revised other
portions of the Bulletin that are not pertinent here.
\17\ Id. ] 16.
\18\ Id.
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The Bulletin also set forth a second example where an employee
works 40 hours for company A and 15 hours for company B during the same
workweek.\19\ The Bulletin explained that if A and B are ``acting
entirely independently of each other with respect to the employment of
the particular employee,'' they are not joint employers and may
``disregard all work performed by the employee for the other company''
in determining their obligations to the employee under the Act for that
workweek.\20\ On the other hand, if ``the employment by A is not
completely disassociated from the employment by B,'' they are joint
employers and must consider the hours worked for both as a whole to
determine their obligations to the employee under the Act for that
workweek.\21\ Relying on section 3(d), the Bulletin concluded by saying
that, ``at least in the following situations, an employer will be
considered as acting in the interest of another employer in relation to
an employee: If the employers make an arrangement for the interchange
of employees or if one company controls, is controlled by, or is under
common control with, directly or indirectly, the other company.'' \22\
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\19\ See id. ] 17.
\20\ Id.
\21\ Id.
\22\ Id.
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In 1958, the Department published a regulation, codified in 29 CFR
part 791, that expounded on Interpretative Bulletin No. 13.\23\ Section
791.2(a) reiterated that joint employer status depends on whether
multiple persons are ``not completely disassociated'' or ``acting
entirely independently of each other'' with respect to the employee's
employment.\24\ Section 791.2(b) explained, ``Where the employee
performs work which simultaneously benefits two or more employers, or
works for two or more employers at different times during the
workweek,'' they are generally considered joint employers:
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\23\ See 23 FR 5905 (Aug. 5, 1958).
\24\ 29 CFR 791.2(a).
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(1) Where there is an arrangement between the employers to share
the employee's services, as, for example, to interchange employees;
or
(2) Where one employer is acting directly or indirectly in the
interest of the other employer (or employers) in relation to the
employee; or
(3) Where the employers are not completely disassociated with
respect to the employment of a particular employee and may be deemed
to share control of the employee, directly or indirectly, by reason
of the fact that one employer controls, is controlled by, or is
under common control with the other employer.\25\
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\25\ 29 CFR 791.2(b) (footnotes omitted).
In 1961, the Department amended a footnote in the regulation to
clarify that a joint employer is also jointly liable for overtime
pay.\26\ Since this 1961 update, the Department has not published any
other updates to part 791.
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\26\ See 26 FR 7732 (Aug. 18, 1961).
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In 1973, the Supreme Court decided a joint employer case in Falk v.
Brennan.\27\ Falk did not cite or rely on part 791, but instead used
section 3(d) to determine whether an apartment management company was a
joint employer of the employees of the apartment buildings that it
managed.\28\ The Court held that, because the management company
exercised ``substantial control [over] the terms and conditions of the
[employees'] work,'' the management company was an employer under 3(d),
and was therefore jointly liable with the building owners for any wages
due to the employees under the FLSA.\29\
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\27\ See 414 U.S. 190.
\28\ See id. at 195.
\29\ Id.
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In 1983, the Ninth Circuit issued a seminal joint employer
decision, Bonnette v. California Health & Welfare Agency.\30\ In
Bonnette, seniors and individuals with disabilities receiving state
welfare assistance (the ``recipients'') employed home care workers as
part of a state welfare program.\31\ Taking an approach similar to
Falk, the court addressed whether California and several of its
counties (the ``counties'') were joint employers of the workers under
section 3(d).\32\ In determining whether the counties were jointly
liable for the home care workers under 3(d), the court found ``four
factors [to be] relevant'': ``whether the alleged [joint] employer (1)
had the power to hire and fire the employees, (2) supervised and
controlled employee work schedules or conditions of employment, (3)
determined the rate and method of payment, and (4) maintained
employment records.'' \33\ The court noted that these four factors
``are not etched in stone and will not be blindly applied'' and that
the determination of joint employer status depends on the circumstances
of the whole activity.\34\ Applying the four factors, the court
concluded that the counties ``exercised considerable control'' and
``had complete economic control'' over ``the nature and structure of
the employment relationship'' between the recipients and home care
workers, and were therefore ``employers'' under 3(d), jointly and
severally liable with the recipients to the home care workers.\35\
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\30\ See 704 F.2d 1465. Although the Ninth Circuit later adopted
a thirteen-factor test in Torres-Lopez v. May, 111 F.3d 633, 639-41
(9th Cir. 1997), Bonnette remains relevant because many courts have
treated it as the baseline for their own joint employer tests.
\31\ See 704 F.2d at 1467-68.
\32\ See id. at 1469-70.
\33\ Id. at 1470.
\34\ Id.
\35\ Id.
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In 2014, the Department issued Administrator's Interpretation No.
2014-2, concerning joint employer status in the context of home care
workers.\36\ The Home Care AI described, consistent with Sec. 791.2, a
joint employer as an additional employer who is ``not completely
disassociated'' from the other employer(s) with respect to a common
employee, and further explained that section 3(g) determines the scope
of joint employer status.\37\ The Home Care AI opined that ``the focus
of the joint employer regulation is the degree to which the two
possible joint employers share control with respect to the employee and
the degree to which the employee is economically dependent on the
purported joint employers.'' \38\ The Home Care AI opined that ``a set
of [joint employer] factors that addresses only control is not
consistent with the breadth of [joint] employment under the FLSA''
because section 3(g)'s ``suffer or permit'' language governs FLSA joint
employer status.\39\ However, the Home Care AI applied the four
Bonnette factors as part of a larger multi-factor analysis that
provided specific guidance about joint employer status in the home care
industry.\40\
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\36\ WHD Administrator's Interpretation No. 2014-2, ``Joint
Employment of Home Care Workers in Consumer-Directed, Medicaid-
Funded Programs by Public Entities under the Fair Labor Standards
Act'' [hereinafter Home Care AI], available at http://www.dol.gov/whd/opinion/adminIntrprtn/FLSA/2014/FLSAAI2014_2.pdf.
\37\ Id.
\38\ Id.
\39\ Id.
\40\ See id.
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In 2016, the Department issued Administrator's Interpretation No.
2016-1 concerning joint employer status under the FLSA and the Migrant
and Seasonal Agricultural Worker Protection Act (MSPA), which the
Department intended to be ``harmonious'' and ``read in conjunction
with'' the Home Care AI's discussion of joint employer status.\41\ The
Joint Employer AI also described section 3(g) as determining the scope
of joint employer status.\42\ The Joint Employer AI opined that ``joint
employment, like employment generally, `should be defined expansively.'
'' \43\ It further opined that, ``joint employment under the FLSA and
MSPA [is] notably broader than the common law . . . which look[s] to
the amount of control that an employer exercises over an employee.''
\44\ The Joint Employer AI concluded that, because ``the expansive
definition of `employ' '' in both the FLSA and MSPA ``rejected the
common law control standard,'' ``the scope of employment relationships
and joint employment under the FLSA and MSPA is as broad as possible.''
\45\ The Department rescinded the Joint Employer AI effective June 7,
2017.\46\
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\41\ WHD Administrator's Interpretation No. 2016-1, ``Joint
employment under the Fair Labor Standards Act and Migrant and
Seasonal Agricultural Worker Protection Act'' [hereinafter Joint
Employer AI].
\42\ See id.
\43\ Id. (quoting Torres-Lopez, 111 F.3d at 639).
\44\ Id.
\45\ Id.
\46\ See U.S. Secretary of Labor Withdraws Joint Employment,
Independent Contractor Informal Guidance, (2017), available at
https://www.dol.gov/newsroom/releases/opa/opa20170607.
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Need for Rulemaking
As noted, the Department has not meaningfully revised its joint
employer regulation, 29 CFR part 791, since its promulgation in 1958.
The current regulation provides some helpful guidance for determining
joint employer status, but as explained below, the Department believes
that it is helpful to offer additional guidance on how to determine
joint employer status in one of the joint employer scenarios under the
Act--where an employer suffers, permits, or otherwise employs an
employee to work, and another person simultaneously benefits from that
work.
Part 791 currently determines joint employer status by asking
whether multiple persons are ``not completely disassociated'' with
respect to the employment of a particular employee.\47\ This standard,
however, does not provide adequate guidance for resolving the situation
where an employee's work for an employer simultaneously benefits
another person (for example, where the employer is a subcontractor or
staffing
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agency, and the other person is a general contractor or staffing agency
client). In this scenario, the employer and the other person are almost
never ``completely disassociated.'' The ``not completely
disassociated'' standard may therefore suggest--contrary to the
Department's longstanding position--that these situations always result
in joint employer status. Moreover, courts have generally not focused
on the degree of association between the employer and potential joint
employer in this scenario. Therefore, it would be helpful to clarify
the standard for joint employer status in order to give the public more
meaningful guidance and proper notice of what the regulation actually
requires.
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\47\ See 29 CFR 791.2(a).
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It would also be helpful to revise part 791 given the current
judicial landscape. Circuit courts currently use a variety of multi-
factor tests to determine joint employer status, and as a result,
organizations operating in multiple jurisdictions may be subject to
joint employer liability in one jurisdiction, but not in another, for
the same business practices. The Department's proposed four-factor
test, if adopted, would provide guidance to courts that may promote
greater uniformity among court decisions. This would promote fairness
and predictability for organizations and employees.
Additionally, revising the Department's regulation could promote
innovation and certainty in business relationships. The modern economy
involves a web of complex interactions filled with a variety of unique
business organizations and contractual relationships. When an employer
contemplates a business relationship with another person, the other
person may not be able to assess what degree of association with the
employer will result in joint and several liability for the employer's
employees. Indeed, the other person may be concerned by such liability
despite having insignificant control over the employer's employees.
This uncertainty could impact the other person's willingness to engage
in any number of business practices vis-[agrave]-vis the employer--such
as providing a sample employee handbook, or other forms, to the
employer as part of a franchise arrangement; allowing the employer to
operate a facility on its premises; using or establishing an
association health plan or association retirement plan that is also
used by the employer; or jointly participating with the employer in an
apprenticeship program. Uncertainty regarding joint liability could
also impact that person's willingness to bargain for certain
contractual provisions with the employer--such as requiring the
employer to institute workplace safety practices, a wage floor, sexual
harassment policies, morality clauses, or other measures intended to
encourage compliance with the law or to promote other desired business
practices. To provide more certainty when organizations are considering
these and other business practices, it would be helpful for the
Department to provide more clarity about what kinds of activities could
result in joint employer status.
It would also be helpful for the Department to clarify that a
person's business model does not make joint employer status more or
less likely under the Act. Part 791 is currently silent on this point,
and that silence may cause unnecessary confusion and uncertainty. For
example, a business that contracts with a staffing agency to receive
labor services is ``not completely disassociated'' from the staffing
agency, but that business is not more or less likely to be a joint
employer simply because it uses a staffing agency. Similarly, a
franchisor and franchisee are ``not completely disassociated.''
However, when the Department investigates a typical franchisee for
potential FLSA violations, the Department does not seek recovery from
the franchisor as a joint employer simply because it has a franchise
arrangement. It is therefore helpful for the Department to explain its
longstanding position that a business model--such as the franchise
model--does not itself indicate joint employer status under the FLSA.
Under the FLSA, a person is a joint employer if it is ``acting . . . in
relation to'' an employee of an employer--not simply because it has a
certain business model.\48\
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\48\ 29 U.S.C. 203(d).
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It would also be helpful to revise the current regulation to
explain the statutory basis for joint employer status under the Act. It
is axiomatic that any Department interpretation of the FLSA must begin
with the text of the statute, following well-settled principles of
statutory construction by ``reading the whole statutory text,
considering the purpose and context of the statute, and consulting any
precedents or authorities that inform the analysis.'' \49\ There are
three terms defined in the Act (``employee,'' ``employ,'' and
``employer'' \50\) that could potentially be relevant to the joint
employer analysis, but the current part 791 does not clearly identify
the textual basis for the scope of joint employer status under the Act.
Clarifying the textual basis for joint employer status would help
ensure that the Department's guidance on this subject is fully
consistent with the text of the Act.
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\49\ See Kasten v. Saint-Gobain Performance Plastics Corp., 563
U.S. 1, 7 (2011) (interpreting the FLSA) (internal quotation marks
and citation omitted).
\50\ See 29 U.S.C. 203(d), (e)(1), (g).
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Finally, it would be helpful for the Department to update its
guidance regarding joint employer status given public interest in the
issue. Recently, the National Labor Relations Board (NLRB) issued
decisions that altered its analysis for determining joint employer
status under the National Labor Relations Act (NLRA) (a separate
statute from the FLSA).\51\ The NLRB is engaging in rulemaking
regarding the joint employer standard under the NLRA.\52\ In recent
years, Congress has held hearings and considered legislation on joint
employer status.\53\ In addition, 84 U.S. Representatives and 26
Senators have expressed their concern and have urged the Department to
update part 791.\54\ These and other developments have generated a
tremendous amount of attention, concern, and debate about joint
employer status in every context, including the FLSA. Rulemaking would
help bring clarity to this discussion.
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\51\ See Browning-Ferris Indus. of California, Inc., 362 NLRB
No. 186 (Aug. 27, 2015).
\52\ See The Standard for Determining Joint-Employer Status, 83
FR 46,681, 46,686 (Sept. 14, 2018).
\53\ See House Cmte. on Educ. & the Workforce, Hearing:
``Redefining Joint Employer Standards: Barriers to Job Creation and
Entrepreneurship'' (July 12, 2017), https://docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=106218; Senate Cmte. on
Health, Educ., Labor, & Pensions, Hearing: ``Who's the Boss? The
`Joint Employer' Standard and Business Ownership (Feb. 5, 2015),
https://www.govinfo.gov/content/pkg/CHRG-114shrg93358/pdf/CHRG-114shrg93358.pdf; H.R. 3441, 115th Congress (2017-2018), Save Local
Business Act.
\54\ See Byrne Leads Bipartisan Letter Asking Acosta to Act on
Joint Employer, (2018), https://byrne.house.gov/media-center/press-releases/byrne-leads-bipartisan-letter-asking-acosta-to-act-on-joint-employer. On September 28, 2018, Senator Isakson sent a
similar letter to the Department, signed by 25 other Senators.
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III. Proposed Regulatory Revisions
The Department proposes to revise its existing joint employer
regulation in part 791 to address these issues. In relevant part, and
as discussed in greater detail below, the Department proposes:
To make non-substantive revisions to the introductory
provision in section 791.1;
To replace the language of ``not completely
disassociated'' as the standard in one of the joint employer
scenarios--where an employer suffers, permits, or otherwise employs an
employee to work one set of hours in a
[[Page 14048]]
workweek, and that work simultaneously benefits another person--with a
four-factor balancing test assessing whether the other person:
[cir] Hires or fires the employee;
[cir] Supervises and controls the employee's work schedules or
conditions of employment;
[cir] Determines the employee's rate and method of payment; and
[cir] Maintains the employee's employment records;
To explain that additional factors may be used to
determine joint employer status, but only if they are indicative of
whether the potential joint employer is:
[cir] Exercising significant control over the terms and conditions
of the employee's work; or
[cir] Otherwise acting directly or indirectly in the interest of
the employer in relation to the employee;
To explain that the employee's ``economic dependence'' on
the potential joint employer does not determine the potential joint
employer's liability under the Act;
To identify three examples of ``economic dependence''
factors that are not relevant for determining joint employer status
under the Act--including, but not limited to, whether the employee:
[cir] Is in a specialty job or a job that otherwise requires
special skill, initiative, judgment, or foresight;
[cir] Has the opportunity for profit or loss based on his or her
managerial skill; and
[cir] Invests in equipment or materials required for work or the
employment of helpers;
To explain that the potential joint employer's ability,
power, or reserved contractual right to act in relation to the employee
is not relevant for determining the potential joint employer's
liability under the Act;
To clarify that indirect action in relation to an employee
may establish joint employer status under the Act;
To explain that FLSA section 3(d) only, not section
3(e)(1) or 3(g), determines joint employer status under the Act;
To clarify that a person's business model--for example,
operating as a franchisor--does not make joint employer status more or
less likely under the Act;
To explain that certain business practices--for example,
providing a sample employee handbook to a franchisee; participating in
or sponsoring an association health or retirement plan; allowing an
employer to operate a facility on one's premises; or jointly
participating with an employer in an apprenticeship program--do not
make joint employer status more or less likely under the Act;
To explain that certain business agreements--for example,
requiring an employer to institute workplace safety measures, wage
floors, sexual harassment policies, morality clauses, or requirements
to comply with the law or promote other desired business practices--do
not make joint employer status more or less likely under the Act;
To make non-substantive clarifications to the joint
employer standard for the other joint employer scenario under the Act--
where multiple employers suffer, permit, or otherwise employ an
employee to work separate sets of hours in the same workweek; and
To provide illustrative examples demonstrating how the
Department's proposed joint employer regulation would apply.
These proposed revisions to part 791 would significantly clarify
how to determine joint employer status under the Act.
The Department welcomes comment on all aspects of its proposal.
A. Proposal To Replace the ``Not Completely Disassociated'' Standard
With a Four-Factor Balancing Test for One of the Joint Employer
Scenarios Under the Act (One Set of Hours)
Part 791 currently determines joint employer status by asking
whether two or more persons are ``not completely disassociated with
respect to the employment of a particular employee.'' \55\ This
standard is not as helpful for determining joint employer status in one
of the joint employer scenarios under the Act--where an employer
suffers, permits, or otherwise employs an employee to work one set of
hours in a workweek, and that work simultaneously benefits another
person.\56\ The Department therefore proposes to replace the ``not
completely disassociated'' standard in this scenario with a four-factor
balancing test derived (with one modification) from Bonnette v.
California Health & Welfare Agency. The proposed test would assess
whether the other person:
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\55\ See 29 CFR 791.2. The regulation similarly advises that
joint employer liability does not exist where ``two or more
employers are acting entirely independently of each other.'' Id.
\56\ Under the Act, ``person'' means ``any individual,
partnership, association, corporation, business trust, legal
representative, or any organized group of persons.'' 29 U.S.C.
203(a).
---------------------------------------------------------------------------
Hires or fires the employee;
Supervises and controls the employee's work schedules or
conditions of employment;
Determines the employee's rate and method of payment; and
Maintains the employee's employment records.\57\
---------------------------------------------------------------------------
\57\ Cf. 704 F.2d at 1470 (considering ``whether the alleged
[joint] employer (1) had the power to hire and fire the employees,
(2) supervised and controlled employee work schedules or conditions
of employment, (3) determined the rate and method of payment, and
(4) maintained employment records'' (quotation marks omitted)).
---------------------------------------------------------------------------
These proposed factors focus on the economic realities of the
potential joint employer's exercise of control over the terms and
conditions of the employee's work.\58\ They closely track the language
of Bonnette, with a modification to the first factor.\59\ Whereas
Bonnette describes the first factor as the ``power'' to hire and fire,
the Department proposes rephrasing this factor to require actual
exercise of power to ensure that its four-factor test is fully
consistent with the text of section 3(d), which requires a person be
``acting . . . in relation to an employee.'' \60\ The Department's
proposal would also clarify that, under 3(d), the potential joint
employer's actions in relation to the employee may be ``indirect.''
\61\ The Department believes that its four proposed factors--which
weigh the economic reality of the potential joint employer's active
control, direct or indirect, over the employee--would be most relevant
to the joint employer analysis for several reasons.
---------------------------------------------------------------------------
\58\ Cf. id. (``The appellants exercised considerable control
over the nature and structure of the employment relationship.'').
\59\ See id. (considering whether the potential joint employer
``had the power to hire and fire the employees,'' rather than
whether the potential joint employer actually hired or fired them).
\60\ See 29 U.S.C. 203(d).
\61\ See id. (`` `Employer' includes any person acting directly
or indirectly in the interest of an employer in relation to an
employee. . . .'').
---------------------------------------------------------------------------
First, these four factors are fully consistent with the text of the
section 3(d). When another person exercises control over the terms and
conditions of the employee's work, that person is ``acting . . . in the
interest of'' the employer ``in relation to'' the employee.\62\
Recognizing this provision, Bonnette adopted an almost identical four-
factor test to determine whether a potential joint employer is liable
under 3(d).\63\
---------------------------------------------------------------------------
\62\ Id.
\63\ See 704 F.2d at 1469-70 (``We conclude that, under the
FLSA's liberal definition of ``employer'' [in section 3(d)], the
appellants were employers of the chore workers.'').
---------------------------------------------------------------------------
Second, these factors are consistent with Supreme Court precedent.
The Supreme Court held in Falk v. Brennan that under 3(d) another
person is jointly liable for an employee if that person exercises
``substantial control'' over the terms and conditions of the employee's
[[Page 14049]]
work.\64\ The Department's proposed four-factor balancing test, which
weighs the potential joint employer's exercise of control over the
terms and conditions of the employee's work, uses the same reasoning as
Falk to determine joint employer status under 3(d).
---------------------------------------------------------------------------
\64\ See 414 U.S. at 195 (``In view of the expansiveness of the
Act's definition of `employer' [in section 3(d)] and the extent of D
& F's managerial responsibilities at each of the buildings, which
gave it substantial control of the terms and conditions of the work
of these employees, we hold that D & F is, under the statutory
definition [in 3(d)], an `employer' of the maintenance workers.'').
---------------------------------------------------------------------------
Third, these factors are highly probative of joint employer status
under the Act. Each factor weighs the potential joint employer's
exercise of control over the more essential terms and conditions of
employment. The potential joint employer's exercise of this control
therefore has a direct relation to the employee's work. And this direct
relation makes it reasonable to hold the potential joint employer
liable for the employee's work. Accordingly, the Department's proposed
test focuses on those facts that strongly indicate joint and several
liability under the Act.
Fourth, these factors are simple, clear-cut, and easy to apply. The
greater the number of factors in a multi-factor test, the more complex
and difficult the analysis may be in any given case, and the greater
the likelihood of inconsistent results in other similar cases. By using
these factors that focus on the exercise of control over the more
essential terms and conditions of employment, the Department believes
its proposed test would determine FLSA joint employer status with
greater ease and consistency. This simplicity would also provide
greater certainty to the public, helping workers and organizations to
determine more accurately who is and is not a joint employer under the
Act before any investigation or litigation begins.
Fifth, these factors are generally applicable and are almost always
present in the scenario where an employee's work for an employer
simultaneously benefits another person. Therefore they should be
helpful for determining joint employer status in a wide variety of
contexts.
Sixth, the Department's proposed four-factor test finds
considerable support in the plurality of circuit courts that already
apply similar multi-factor, economic realities tests. The First and
Fifth Circuits apply the Bonnette test, which is nearly identical to
the Department's proposed test.\65\ The Seventh Circuit uses this same
test as a baseline to determine joint employer status under the
FMLA,\66\ and district courts in the Seventh Circuit apply it in FLSA
cases.\67\ Moreover, the Third Circuit applies a similar four-factor
test that considers whether the potential joint employer:
---------------------------------------------------------------------------
\65\ Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d
668, 675-76 (1st Cir. 1998); see Gray v. Powers, 673 F.3d 352, 355-
57 (5th Cir. 2012). Although Gray involved whether an individual
owner of the employer was jointly liable under the FLSA, the court
noted that it ``must apply the economic realities test to each
individual or entity alleged to be an employer and each must satisfy
the four part test.'' 673 F.3d at 355 (quotation marks and citation
omitted)). Two older Fifth Circuit decisions applied a different
test to determine whether an entity was a joint employer under the
Act, and the Fifth Circuit has not yet overruled those decisions--
creating some uncertainty about what joint employer test applies in
the Fifth Circuit. See Hodgson v. Griffin & Brand of McAllen, Inc.,
471 F.2d 235, 237-38 (5th Cir. 1973); Wirtz v. Lone Star Steel Co.,
405 F.2d 668, 669-670 (5th Cir. 1968).
\66\ See Moldenhauer v. Tazewell-Pekin Consol. Commc'ns Ctr.,
536 F.3d 640, 641-42 (7th Cir. 2008) (``[W]e hold generally that . .
. each alleged [joint] employer must exercise control over the
working conditions of the employee . . .'' (citing Reyes v.
Remington Hybrid Seed Co., 495 F.3d 403, 408 (7th Cir. 2007)). While
the Seventh Circuit's FLSA decision in Reyes did not use the
Bonnette factors, the court in Moldenhauer stated that Reyes ``held
that both the farm that employed migrant workers and the recruiter
who placed the workers at the farm . . . controlled the workers'
daily activities and working conditions.'' Moldenhauer, 536 F.3d at
644 (citing Reyes, 495 F.3d at 404-08).
\67\ See, e.g., In re Jimmy John's Overtime Litig., Nos. 14 C
5509, 15 C 1681, & 15 C 6010, 2018 WL 3231273, at *13-14 (N.D. Ill.
June 14, 2018); Babych v. Psychiatric Solutions, Inc., No. 09 C
8000, 2011 WL 5507374, at *6-8 (N.D. Ill. Nov. 9, 2011).
---------------------------------------------------------------------------
Has authority to hire and fire employees;
Has authority to promulgate work rules and assignments,
and set conditions of employment, including compensation, benefits, and
hours;
Exercises day-to-day supervision, including employee
discipline; and
Controls employee records, including payroll, insurance,
taxes, and the like.\68\
---------------------------------------------------------------------------
\68\ In re Enter. Rent-A-Car Wage & Hour Emp't Practices Litig.,
683 F.3d 462, 469-71 (3d Cir. 2012).
According to the Third Circuit, ``[t]hese factors are not materially
different from'' the Bonnette factors.\69\ Finally, additional
precedent supports the Department's proposed factors.\70\
---------------------------------------------------------------------------
\69\ Id. at 469.
\70\ See Bacon v. Subway Sandwiches & Salads LLC, 2015 WL
729632, at *4 (E.D. Tenn. Feb. 19, 2015) (applying in an FLSA case
three factors similar to the Bonnette factors); Ash v. Anderson
Merchandisers, LLC, 799 F.3d 957, 961 (8th Cir. 2015) (suggesting in
an FLSA case that three factors similar to the Bonnette factors
would apply to determine joint employer status).
---------------------------------------------------------------------------
Although four other circuit courts apply different joint employer
tests, each of them applies at least one factor that resembles one of
the Department's proposed factors derived from the Bonnette test.\71\
The Second and Fourth Circuits rejected the Bonnette test because they
did not believe it could ``be reconciled with the `suffer or permit'
language in [FLSA section 3(g)], which necessarily reaches beyond
traditional agency law.'' \72\ But the Department believes that section
3(d), not section 3(g), is the touchstone for joint employer status and
that its proposed four-factor balancing test is preferable and
consistent with the text of that section.
---------------------------------------------------------------------------
\71\ See Salinas v. Commercial Interiors, Inc., 848 F.3d 125,
141-42 (4th Cir. 2017) (of the six factors comprising the first step
of its joint employer analysis, applying three factors resembling
the Bonnette factors); Layton v. DHL Exp. (USA), Inc., 686 F.3d
1172, 1176 (11th Cir. 2012) (applying an eight-factor test with five
factors resembling the Bonnette factors); Zheng v. Liberty Apparel
Co. Inc., 355 F.3d 61, 72 (2d Cir. 2003) (applying a six-factor test
with one factor resembling one of the Bonnette factors); Torres-
Lopez, 111 F.3d at 639-41 (applying a thirteen-factor test with five
factors resembling the Bonnette factors).
\72\ Salinas, 848 F.3d at 136 (quotation marks omitted); Zheng,
355 F.3d at 69.
---------------------------------------------------------------------------
B. Proposal To Explain What Additional Joint Employer Factors Could Be
Relevant
The Department proposes to revise part 791 to address whether any
additional factors may be relevant for determining joint employer
status. Because joint employer status is determined by 3(d), the
Department proposes to explain that any additional factors must be
consistent with the text of 3(d). Thus, any additional factors
indicating ``significant control'' \73\ are relevant because the
potential joint employer's exercise of significant control over the
employee's work establishes its joint liability under 3(d).\74\
Finally, the Department proposes to explain that any factors that do
not fit within these parameters--as indicative of significant control
or otherwise consistent with the text of 3(d)--are not relevant to the
joint employer analysis.
---------------------------------------------------------------------------
\73\ Enterprise, 683 F.3d at 470 (holding that additional joint
employer factors should be ``indicia of `significant control' ''
(citing Moldenhauer, 536 F.3d at 645 (``In Reyes and Grace, the
primary employer placed workers with the alleged secondary employer,
but both employers maintained significant control over the employee
and were thus found to be joint employers.'' (citations omitted)))).
\74\ See, e.g., Falk, 414 U.S. at 195 (finding joint employer
liability under 3(d) where the potential joint employer exercised
``substantial control [over] the terms and conditions of the
[employees'] work''); Bonnette, 704 F.2d at 1470 (finding joint
employer liability under 3(d) where the potential joint employer
``exercised considerable control'' and ``had complete economic
control'' ``over the nature and structure of the employment
relationship'').
---------------------------------------------------------------------------
These proposals would not take away from the dynamic and fact-bound
nature of the joint employer inquiry, but they would recognize that the
text of 3(d) determines the scope of--and therefore
[[Page 14050]]
places limitations on--joint liability. The Department believes that
these proposals would provide workers and organizations with more
certainty regarding joint employer status under the Act.
C. Proposal To Explain That Joint Employer Status Under the Act Is Not
Determined by the Employee's ``Economic Dependence'' and To Identify
Three Examples of ``Economic Dependence'' Factors That Are Not Relevant
The Department proposes to explain that joint employer status is
not determined by the employee's ``economic dependence'' on the
potential joint employer and to identify three examples of ``economic
dependence'' factors that are not relevant to the Department's proposed
multi-factor test and section 3(d). Identifying specific factors that
are not relevant will help the public to have more certainty over what
factors to apply when determining whether a person qualifies as a joint
employer under the Act.
Because section 3(d) establishes joint liability for ``any person
acting directly or indirectly in the interest of an employer in
relation to an employee,'' \75\ joint employer status is determined by
the actions of the potential joint employer--not by the actions of the
employee or his or her employer.\76\ As such, any factors that focus on
the actions of the employee or his or her employer are not relevant to
the joint employer inquiry, including those focusing on the employee's
``economic dependence.'' The Department therefore proposes to explain
that joint employer status is determined by the actions of the
potential joint employer--not by the employee's economic dependence--
and to identify three examples of economic dependence factors that are
not relevant.
---------------------------------------------------------------------------
\75\ 29 U.S.C. 203(d).
\76\ See id. (``Employer'' includes any person acting directly
or indirectly in the interest of an employer in relation to an
employee . . . '' (emphasis added)).
---------------------------------------------------------------------------
Specifically, the Department proposes to identify as not relevant
whether the employee: (1) Is in a specialty job or a job that otherwise
requires special skill, initiative, judgment, or foresight; (2) has the
opportunity for profit or loss based on his or her managerial skill;
and (3) invests in equipment or materials required for work or the
employment of helpers. These three factors focus on whether the
employee is correctly classified as such under the Act--and not on
whether the potential joint employer is acting in the interest of the
employer in relation to the employee. While courts have used these
factors for determining whether a worker is an employee or independent
contractor, they are not relevant for determining whether additional
persons are jointly liable under the Act to a worker whose
classification as an employee has already been established.
Finally, there is judicial precedent for specifically identifying
factors that are not relevant to the joint employer inquiry. Notably,
the Eleventh Circuit identified three factors--including the skill
required and the opportunity for profit and loss--as not relevant to
the joint employer inquiry.\77\ The Eleventh Circuit explained that
these factors ``only distinguished whether [a worker] was an employee
or an independent contractor,'' not whether an additional person was a
joint employer of the worker.\78\ Similarly, the courts have found that
the ``usefulness'' of the traditional employment relationship test--
which includes factors such as the skill required, opportunity for
profit or loss, and investment in the business--is ``significantly
limited'' in a joint employer case where the employee already has an
employer and the question is whether an additional person is jointly
liable with the employer for the employee.\79\
---------------------------------------------------------------------------
\77\ See Layton, 686 F.3d at 1176.
\78\ Id.
\79\ E.g., Baystate, 163 F.3d at 675 n.9.
---------------------------------------------------------------------------
D. Proposal To Explain That Joint Employer Status Is Determined by FLSA
Section 3(d) Only, Not by Section 3(e)(1) or 3(g)
The Department proposes to explain that the textual basis for FLSA
joint employer status is section 3(d), not section 3(e)(1) or 3(g).
While the FLSA does not use the term ``joint employer,'' the FLSA
contemplates joint liability in section 3(d). First, the FLSA defines
the term ``employee'' in section 3(e)(1) to mean ``any individual
employed by an employer.'' \80\ The FLSA, in turn, defines the term
``employ'' in section 3(g): `` `[e]mploy' includes to suffer or permit
to work.'' \81\ Reading 3(e)(1) and 3(g) together, an employer is a
person who suffers, permits, or otherwise employs an individual to
work, and an employee is an individual whom another person suffers,
permits, or otherwise employs to work. The FLSA further defines
``employer'' in section 3(d) to ``include[ ]'' joint employers--``any
person acting directly or indirectly in the interest of an employer in
relation to an employee.'' \82\
---------------------------------------------------------------------------
\80\ 29 U.S.C. 203(e)(1) (emphasis added).
\81\ 29 U.S.C. 203(g).
\82\ 29 U.S.C. 203(d).
---------------------------------------------------------------------------
Sections 3(d), 3(e)(1), and 3(g) therefore work in harmony. If an
employer suffers, permits, or otherwise employs an employee to work
under 3(e)(1) and 3(g), and another person is acting directly or
indirectly in the interest of the employer in relation to the employee
under 3(d), then the employer and the other person are jointly and
severally liable for the employee's hours worked. During that period,
the employer is liable for the hours that it suffers, permits, or
otherwise employs the employee to work, and the other person is a joint
employer under 3(d), jointly and severally liable for those same hours
worked.
Accordingly, 3(e)(1) and 3(g) determine whether there is an
employment relationship between the potential employer and the worker
for a specific set of hours worked, and 3(d) alone determines another
person's joint liability for those hours worked. This delineation is
confirmed by the structure of the text. A person who is, under 3(d),
acting ``in the interest of an employer in relation to an employee''
is, by definition, a second employer.\83\ Another person can become a
joint employer of an employee under 3(d) only if an employer is already
suffering, permitting, or otherwise employing that employee to work
under sections 3(e)(1) and 3(g).\84\ By contrast, sections 3(e)(1) and
3(g) do not expressly address the possibility of a second employment
relationship. In fact, 3(e)(1) defines an ``employee'' as ``any
individual employed by an employer''--singular.\85\ But 3(d)'s
inclusion of ``any person acting directly or indirectly in the interest
of an employer in relation to an employee'' encompasses any additional
persons that may be held jointly liable for the employee's hours worked
in a workweek. The Department's interpretation of sections 3(d),
(e)(1), and (g) is therefore consistent with the text of the Act which
expands employer liability beyond the initial employment relationship
to additional persons.
---------------------------------------------------------------------------
\83\ Id.
\84\ Id. (```Employer' includes any person acting directly or
indirectly in the interest of an employer in relation to an employee
. . . . '' (emphasis added)).
\85\ In contrast, the definition of ``employee'' in the NLRA
expressly contemplates the existence of multiple employers. See 29
U.S.C. 152(3) (``The term `employee''' shall include any employee,
and shall not be limited to the employees of a particular employer .
. . '').
---------------------------------------------------------------------------
This clear textual delineation is consistent with judicial
precedent. In Rutherford Food, the Supreme Court identified the FLSA's
definition of ``employ'' in section 3(g) in particular when determining
whether the workers
[[Page 14051]]
at issue were employees or independent contractors.\86\ The Court cited
section 3(d) only in passing in a footnote.\87\ By contrast, in Falk
the Supreme Court relied on the FLSA's definition of ``employer'' in
section 3(d) to determine joint employer status.\88\ The Court in Falk
found joint employer status under 3(d) because of the potential joint
employer's exercise of control over the terms and conditions of the
employee's work.\89\ Falk did not cite 3(g).\90\ In the same way,
Bonnette determined joint employer status according to the text of 3(d)
alone, without citing 3(g).\91\
---------------------------------------------------------------------------
\86\ Rutherford Food Corp. v. McComb, 331 U.S. 722, 727-29
(1947) (``We pass . . . upon the question whether the [workers] were
employees of the operator of the Kansas plant under the Fair Labor
Standards Act. . . . We conclude . . . that these [workers] are not
independent contractors.'').
\87\ See id. at 728 n.6. In addition to Rutherford, the Court
has consistently defined employment relationships under the FLSA by
reference to sections 3(e)(1) and 3(g), not section 3(d). See, e.g.,
Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 31-33 (1961)
(finding an employment relationship under sections 3(e) and 3(g));
United States v. Rosenwasser, 323 U.S. 360, 362-64 (1945) (relying
on sections 3(e) and (g) and finding an employment relationship
without citation to 3(d)).
\88\ See 414 U.S. at 195.
\89\ See id.
\90\ See id. Falk mentioned 3(e)(1), but only in passing. See
id.
\91\ See 704 F.2d at 1469-70 (``We conclude that, under the
FLSA's liberal definition of `employer' [in 3(d)], the appellants
were [joint] employers of the chore workers.'').
---------------------------------------------------------------------------
Accordingly, the Department proposes to revise part 791 to better
account for section 3(d), Falk, and Bonnette by explaining that joint
employer status is determined by 3(d) alone--whether the potential
joint employer is acting in the interest of an employer in relation to
an employee. Explicitly tethering the joint employer standard in part
791 to section 3(d) will provide clearer guidance on how to determine
joint employer status consistent with the text of the Act.
E. Proposal To Clarify That a Person's Business Model, Certain Business
Practices, and Certain Contractual Provisions Do Not Make Joint
Employer Status More or Less Likely
The Department proposes to clarify that a potential joint
employer's business model does not make joint employer status more or
less likely under the Act. Under the FLSA, a person is a joint employer
if it is ``acting . . . in relation to'' an employee of an employer--
not simply because it has a certain business model.\92\ Accordingly,
the mere fact that a potential joint employer enters into a franchise
arrangement with an employer does not itself make that person jointly
liable for the employer's employees. The potential joint employer must
be acting, directly or indirectly, ``in relation to'' those employees
to be jointly liable for them.\93\
---------------------------------------------------------------------------
\92\ 29 U.S.C. 203(d).
\93\ Id.
---------------------------------------------------------------------------
The Department also proposes to clarify that certain business
practices that the Department has encountered--such as providing a
sample employee handbook or other forms to an employer as part of a
franchise arrangement; allowing an employer to operate a facility on
its premises; offering or participating in an association health or
retirement plan; \94\ or jointly participating with an employer in an
apprenticeship program--do not make joint employer liability more or
less likely under the Act. Of course, if a potential joint employer
enforced the terms of a franchise handbook against a franchisee's
employee, or directed an employer's employee to participate in a joint
apprenticeship program, or exercised control over an employer's
employee who worked on its premises, those actions ``in relation to''
the employee could indicate joint employer status. The mere business
practices themselves--participating in the apprenticeship program,
health plan, or retirement plan; sharing the premises; or providing the
handbook--do not necessarily involve the potential joint employer
``acting . . . in relation to'' the employer's employee.
---------------------------------------------------------------------------
\94\ Proposing to clarify that offering or participating in an
association health or retirement plan does not make joint employer
status more or less likely under the FLSA does not impact the
interpretation of ``employer'' under the Employee Retirement Income
Security Act (ERISA) because ERISA defines ``employer'' differently
than the FLSA. See 29 U.S.C. 1002(5) (defining ``employer'' under
ERISA to mean ``any person acting . . . in relation to an employee
benefit plan'' and to include ``a group or association of employers
acting for an employer in such capacity'').
---------------------------------------------------------------------------
The Department also proposes to clarify that certain contractual
provisions between an employer and another person--such as requiring
the employer to institute workplace safety practices, a wage floor,
sexual harassment policies, morality clauses,\95\ or other measures to
encourage compliance with the law or to promote desired business
practices--do not make joint employer status more or less likely under
the Act. Of course, if a potential joint employer enforced the terms of
these provisions--for example, by directly firing one of the employer's
employees for violating a sexual harassment policy--those actions ``in
relation to'' the employee could indicate joint employer status.
However, the provisions themselves merely require the employer to
institute generic policies. They do not show control over any actual
employment decisions. They do not involve the potential joint employer
``acting . . . in relation to'' any of the employer's employees.
---------------------------------------------------------------------------
\95\ Morality clauses require employees to maintain standards of
behavior to protect the reputation of their employer. See, e.g.,
Galaviz v. Post-Newsweek Stations, 380 F. App'x 457, 459 (5th Cir.
2010), and Bernsen v. Innovative Legal Marketing, LLC, No.
2:11CV546, 2012 WL 3525612 (E.D. Va. Jun. 20, 2012), for examples of
morality clauses.
---------------------------------------------------------------------------
F. Proposal To Replace the Phrase ``Joint Employment''
The Department also proposes to replace the phrase ``joint
employment'' with ``joint employer status'' throughout part 791. This
change will help to focus the inquiry on whether the potential joint
employer has taken sufficient action to be held jointly and severally
liable under 3(d).
G. Proposal To Reiterate That a Joint Employer Can Be Any Legal Person
Under the Act
Because section 3(d) ``includes any person acting directly or
indirectly in the interest of an employer in relation to an employee,''
\96\ the Department proposes to add the Act's definition of ``person''
to part 791.\97\ This addition would ensure that a joint employer under
3(d) broadly encompasses every kind of person contemplated by the Act.
---------------------------------------------------------------------------
\96\ 29 U.S.C. 203(d) (emphasis added).
\97\ 29 U.S.C. 203(a).
---------------------------------------------------------------------------
H. Proposal To Make Non-Substantive Revisions to the Department's
Current Joint Employer Standard in the Other Joint Employer Scenario
(Separate Sets of Hours)
The Department believes that part 791's ``not completely
disassociated'' standard provides clear and useful guidance in the
other joint employer scenario, where multiple employers suffer, permit,
or otherwise employ an employee to work separate sets of hours in the
same workweek. In this scenario, employer A suffers or permits the
employee to work one set of hours in a workweek--for example, 30 hours
Monday through Wednesday--and employer B suffers or permits the
employee to work a second set of hours in the same workweek--for
example, 20 hours Thursday and Friday. If employers A and B are ``not
completely disassociated'' with respect to the employee's employment,
then the employee's hours worked for them in the workweek are
aggregated and A and B are jointly and severally liable to the employee
for 40 hours plus 10 overtime hours.
[[Page 14052]]
Under part 791, employers A and B will generally be considered to
be sufficiently associated if: (1) There is an arrangement between them
to share the employee's services; (2) one employer is acting directly
or indirectly in the interest of the other employer in relation to the
employee; or (3) they share control of the employee, directly or
indirectly, by reason of the fact that one employer controls, is
controlled by, or is under common control with the other employer. The
second of these three situations is simply a restatement of the
statutory basis for joint liability in section 3(d), and the first and
third situations--sharing an employee and exercising common control
over that employee--involve the employers acting in each other's
interest in relation to an employee in specific ways (establishing
joint liability under 3(d)). The Department believes that this standard
provides adequate clarity to determine joint employer status in this
scenario, and to identify the statutory basis for that joint liability.
Indeed, courts have applied the Department's current regulation in this
scenario and have found it useful.\98\ Additionally, the Department has
issued opinion letters applying its current regulation to determine
whether certain facts satisfy this joint employer scenario.\99\ The
Department accordingly proposes only non-substantive revisions to the
current regulation with respect to this scenario.
---------------------------------------------------------------------------
\98\ See, e.g., Chao v. A-One Med. Servs., Inc., 346 F.3d 908,
917-18 (9th Cir. 2003) (relying on Sec. 791.2 to find two home
health care providers that shared staff, had common management, and
were operated under common control of the same person to be joint
employers); Murphy v. Heartshare Human Servs. of New York, 254
F.Supp.3d 392, 399-404 (E.D.N.Y. 2017) (relying on Sec. 791.2 to
hold that former employees pled with sufficient particularity that a
school and a residence house were joint employers for separate hours
worked because they coordinated the employees' work assignments,
some of the employees' duties benefitted both, and they had
overlapping management and human resources functions); Li v. A
Perfect Day Franchise, Inc., 281 FRD. 373, 400-01 (N.D. Cal. 2012)
(relying on the ``common control'' provision in Sec. 791.2 to find
joint employer status); Chao v. Barbeque Ventures, LLC, No.
8:06CV676, 2007 WL 5971772, at *6 (D. Neb. Dec. 12, 2007) (relying
on section 3(d), Sec. 791.2, and Falk to find that separate
restaurants that shared owners and had the same managers controlling
both restaurants were joint employers).
\99\ See, e.g., Wage & Hour Div., Opinion Letter FLSA 2005-17NA,
2005 WL 6219105 (June 14, 2005) (applying Sec. 791.2 to determine
that separate health care facilities were joint employers and
employees' hours worked for different facilities must be aggregated
in a workweek to calculate whether overtime pay is due); Wage & Hour
Division Opinion Letter 1998 WL 1147714 (Jul. 13, 1998) (applying
Sec. 791.2 to determine that separate health care entities were
joint employers and employees' hours worked for different entities
must be aggregated in a workweek for purposes of calculating any
overtime pay due under the Act).
---------------------------------------------------------------------------
I. Joint Employer Examples
The Department proposes to include several illustrative examples
applying the Department's proposed analysis to determine joint employer
status. The Department's proposed conclusions following each example
are, like all illustrative examples, limited to substantially similar
factual situations.
J. Severability
Finally, the Department proposes to include a severability
provision in part 791 so that, if one or more of the provisions of part
791 is held invalid or stayed pending further agency action, the
remaining provisions would remain effective and operative. The
Department proposes to add this provision as Sec. 791.3.
IV. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
and its attendant regulations, 5 CFR part 1320, require the Department
to consider the agency's need for its information collections, their
practical utility, as well as the impact of paperwork and other
information collection burdens imposed on the public, and how to
minimize those burdens. The PRA typically requires an agency to provide
notice and seek public comments on any proposed collection of
information contained in a proposed rule. See 44 U.S.C. 3506(c)(2)(B);
5 CFR 1320.8. This NPRM does not contain a collection of information
subject to OMB approval under the Paperwork Reduction Act. The
Department welcomes comments on this determination.
V. Executive Order 12866, Regulatory Planning and Review; and Executive
Order 13563, Improved Regulation and Regulatory Review
Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of a regulation and to adopt a regulation only upon
a reasoned determination that the regulation's net benefits (including
potential economic, environmental, public health and safety effects,
distributive impacts, and equity) justify its costs. Executive Order
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
Under Executive Order 12866, the Office of Management and Budget
(OMB) must determine whether a regulatory action is a ``significant
regulatory action,'' which includes an action that has an annual effect
of $100 million or more on the economy. Significant regulatory actions
are subject to review by OMB. As described below, this proposed rule is
economically significant. Therefore, the Department has prepared a
preliminary Regulatory Impact Analysis (RIA) in connection with this
NPRM as required under section 6(a)(3) of Executive Order 12866, and
OMB has reviewed the rule.
By simplifying the standard for determining joint employer status,
this proposed rule would reduce the burden on the public. This proposed
rule is accordingly expected to be an Executive Order 13771
deregulatory action.\100\
---------------------------------------------------------------------------
\100\ 82 FR 9339 (Feb. 3, 2017).
---------------------------------------------------------------------------
A. Introduction
1. Background
The Fair Labor Standards Act (FLSA) requires a covered employer to
pay its nonexempt employees at least the federal minimum wage for every
hour worked and overtime premium pay of at least 1.5-times their
regular rate of pay for all hours worked in excess of 40 in a workweek.
The FLSA defines an ``employer'' to ``include[ ] any person acting
directly or indirectly in the interest of an employer in relation to an
employee.'' These persons are ``joint'' employers who are jointly and
severally liable with the employer for every hour worked by the
employee in a workweek. 29 CFR part 791 contains the Department's
official interpretation of joint employer status under the FLSA. In
this NPRM, the Department proposes to revise part 791 to adopt a four-
factor balancing test to determine joint employer status in one of the
joint employer scenarios under the Act--where an employer suffers,
permits, or otherwise employs an employee to work, and another person
simultaneously benefits from that work. This proposed rule would
explain what additional factors should and should not be considered,
and provide guidance on how to apply this multi-factor test. The
Department proposes no substantive changes to part 791's guidance in
the other joint employer scenario--where multiple employers suffer,
permit, or otherwise employ an employee to work separate sets of hours
in the same workweek. The Department believes that its proposals would
make it easier to determine whether a person is or is not a joint
employer under the Act, thereby promoting compliance with the FLSA.
2. Need for Rulemaking
For the reasons explained above, the Department has determined that
its interpretation of joint employer status requires revision as it
applies to the first joint employer scenario identified above
[[Page 14053]]
(one set of hours worked in a workweek). The Department is concerned
that the current regulation does not adequately address this scenario,
and believes that its proposed revisions would provide needed clarity
in this scenario. The Department also believes a proposed rule:
Could help bring clarity to the current judicial
landscape, where different courts are applying different joint employer
tests that have resulted in inconsistent treatment of similar worker
situations, uncertainty for organizations, and increased compliance and
litigation costs;
Would reduce the chill on organizations who may be
hesitant to enter into certain relationships or engage in certain kinds
of business practices for fear of being held liable for counterparty
employees over which they have insignificant control;
Would better ground the Department's interpretation of
joint employer status in the text of the FLSA; and
Would be responsive to the current public and
Congressional interest in the joint employer issue.
The Department believes that the current regulation provides clear
and useful guidance to determine joint employer status in the second
scenario, but that non-substantive revisions to better reflect the
Department's longstanding practice would be desirable.
B. Economic Impacts
The Department estimated the number of affected firms and
quantified the costs associated with this proposed rule. The Department
expects that all businesses and state and local government entities
would need to review the text of this rule, and therefore would incur
regulatory familiarization costs. However, on a per-entity basis, these
costs would be small (see Section V.2 for detailed analysis of
regulatory familiarization costs). Because this rule does not alter the
standard for determining joint employer status in the second joint
employer scenario where the employee works separate sets of hours for
multiple employers in the same workweek, the Department believes that
there would be no change in the aggregation of workers' hours to
determine overtime hours worked.\101\ Therefore, there would be no
impact on workers in the form of lost overtime, and no transfers
between employers and employees. Although this rule would alter the
standard for determining joint employer status where the employee works
one set of hours in a workweek that simultaneously benefits another
person, the Department believes that there would still be no impact on
workers' wages due under the FLSA. This proposed standard would not
change the amount of wages the employee is due under the FLSA, but
could reduce, in some cases, the number of persons who are liable for
payment of those wages. To the extent this proposal provides a clearer
standard for determining joint employer status where the employee works
one set of hours for his or her employer that simultaneously benefits
another person, this rule may make it easier to determine who is liable
for earned wages.
---------------------------------------------------------------------------
\101\ In this scenario, the employee's separate sets of hours
are aggregated so that both employers are jointly and severally
liable for the total hours the employee works in the workweek. As
such, a finding of joint liability in this situation can result in
some hours qualifying for an overtime premium. For example, if the
employee works for employer A for 40 hours in the workweek, and for
employer B for 10 hours in the same workweek, and those employers
are found to be joint employers, A and B are jointly and severally
liable to the employee for 50 hours worked--which includes 10
overtime hours.
---------------------------------------------------------------------------
1. Costs
Updating the rules interpreting joint employer status will impose
direct costs on private businesses and state and local government
entities by requiring them to review the new regulation. To estimate
these regulatory familiarization costs, the Department must determine:
(1) The number of potentially affected entities, (2) the average hourly
wage rate of the employees reviewing the regulation, and (3) the amount
of time required to review the regulation.
It is uncertain whether private entities will incur regulatory
familiarization costs at the firm or the establishment level. For
example, in smaller businesses there might be just one specialist
reviewing the regulation. Larger businesses might review the rule at
corporate headquarters and determine policy for all establishments
owned by the business, while more decentralized businesses might assign
a separate specialist to the task in each of their establishments. To
avoid underestimating the costs of this rule, the Department uses both
the number of establishments and the number of firms to estimate a
potential range for regulatory familiarization costs. The lower bound
of the range is calculated assuming that one specialist per firm will
review the regulation, and the upper bound of the range assumes one
specialist per establishment.
The most recent data on private sector entities at the time this
NPRM was drafted are from the 2016 Statistics of U.S. Businesses
(SUSB), which reports 6.1 million private firms and 7.8 million private
establishments with paid employees.\102\ Additionally, the Department
estimates 90,106 state and local governments (2012 Census of
Governments) might incur costs under the proposal.\103\
---------------------------------------------------------------------------
\102\ Statistics of U.S. Businesses 2016, https://www.census.gov/programs-surveys/susb.html.
\103\ 2012 Census of Governments: Government Organization
Summary Report, http://www2.census.gov/govs/cog/g12_org.pdf.
---------------------------------------------------------------------------
The Department believes that even entities that do not currently
have workers with one or more joint employers will incur regulatory
familiarization costs, because they will need to confirm whether this
proposed rule includes any provisions that may affect them or their
employees.
The Department judges one hour per entity, on average, to be an
appropriate review time for the rule. The relevant statutory
definitions have been in the FLSA since its enactment in 1938, the
Department has recognized the concept of joint employer status since at
least 1939, and the Department already issued a rule interpreting joint
employer status in 1958. Therefore, the Department expects that the
standards applied by this proposed rule should be at least partially
familiar to the specialists tasked with reviewing it. Additionally, the
Department believes many entities are not joint employers and thus
would spend significantly less than one hour reviewing the rule.
Therefore, the one-hour review time represents an average of less than
one hour per entity for the majority of entities that are not joint
employers, and more than one hour for review by entities that might be
joint employers. The Department welcomes comments on the estimate of
one hour of review time per entity, and data on the amount of time
typically spent by small businesses in regulatory review.
The Department's analysis assumes that the proposed rule would be
reviewed by Compensation, Benefits, and Job Analysis Specialists (SOC
13-1141) or employees of similar status and comparable pay. The mean
hourly wage for these workers is $32.29 per hour.\104\ In addition, the
Department also assumes that benefits are paid at a rate of 46 percent
\105\ and overhead costs are
[[Page 14054]]
paid at a rate of 17 percent of the base wage, resulting in an hourly
rate of $52.63.
---------------------------------------------------------------------------
\104\ Occupational Employment and Wages, May 2017, https://www.bls.gov/oes/2017/may/oes131141.htm.
\105\ The benefits-earnings ratio is derived from the Bureau of
Labor Statistics' Employer Costs for Employee Compensation data
using variables CMU1020000000000D and CMU1030000000000D.
Table 1--Total Regulatory Familiarization Costs, Calculation by Number of Firms and Establishments ($1000s)
----------------------------------------------------------------------------------------------------------------
By firm By establishment
NAICS sector -----------------------------------------------------------------
Firms Cost \a\ Establishments Cost \a\
----------------------------------------------------------------------------------------------------------------
Agriculture, Forestry, Fishing and Hunting.... 21,830 $1,149 22,594 $1,189
Mining, Quarrying, and Oil/Gas Extraction..... 20,309 1,069 27,234 1,433
Utilities..................................... 5,893 310 18,159 956
Construction.................................. 683,352 35,967 696,733 36,671
Manufacturing................................. 249,962 13,156 291,543 15,345
Wholesale Trade............................... 303,155 15,956 412,526 21,712
Retail Trade.................................. 650,997 34,264 1,069,096 56,269
Transportation and Warehousing................ 181,459 9,551 230,994 12,158
Information................................... 75,766 3,988 146,407 7,706
Finance and Insurance......................... 237,973 12,525 476,985 25,105
Real Estate and Rental and Leasing............ 300,058 15,793 390,500 20,553
Professional, Scientific, and Technical Serv.. 805,745 42,409 903,534 47,555
Management of Companies and Enterprises....... 27,184 1,431 55,384 2,915
Administrative and Support Services........... 340,893 17,942 409,518 21,554
Educational Services.......................... 91,774 4,830 103,364 5,440
Health Care and Social Assistance............. 661,643 34,824 890,519 46,870
Arts, Entertainment, and Recreation........... 126,247 6,645 137,210 7,222
Accommodation and Food Services............... 527,632 27,771 703,528 37,029
Other Services (except Public Admin.)......... 690,329 36,334 754,229 39,697
State and Local Governments................... 90,106 4,743 90,106 4,743
All Industries............................ 6,092,307 320,655 7,830,163 412,123
----------------------------------------------------------------------------------------------------------------
Average Annualized Costs, 7 Percent Discount Rate
----------------------------------------------------------------------------------------------------------------
Over 10 years 42,667 54,838
In perpetuity 20,977 26,961
----------------------------------------------------------------------------------------------------------------
Average Annualized Costs, 3 Percent Discount Rate
----------------------------------------------------------------------------------------------------------------
Over 10 years 36,496 46,906
In perpetuity 9,339 12,004
----------------------------------------------------------------------------------------------------------------
\a\ Each entity is expected to allocate one hour of Compensation, Benefits, and Job Analysis Specialists' (SOC
13-1141) time for regulatory familiarization. The unloaded hourly rate for this occupation is $32.29, and the
wage load factor is 1.63 (0.46 for benefits and 0.17 for overhead). Therefore, the per-entity cost is $52.63.
The Department estimates that the lower bound of regulatory
familiarization cost range would be $320.7 million, and the upper
bound, $412.1 million. Additionally, the Department estimates that the
Retail Trade industry would have the highest upper bound ($56.3
million), while the Professional, Scientific and Technical Services
industry would have the highest lower bound ($42.4 million). The
Department estimates that all regulatory familiarization costs would
occur in Year 1.
Additionally, the Department estimated average annualized costs of
this rule over 10 years and in perpetuity. Over 10 years, this rule
would have an average annual cost of $42.7 million to $54.8 million,
calculated at a 7 percent discount rate ($36.5 million to $46.9 million
calculated at a 3 percent discount rate). In perpetuity, this rule
would have an average annual cost of $21.0 million to $27.0 million,
calculated at a 7 percent discount rate ($9.3 million to $12.0 million
calculated at a 3 percent discount rate).
2. Potential Transfers
There are two joint employer scenarios under the FLSA: (1)
Employees work one set of hours that simultaneously benefit the
employer and another person, and (2) employees work separate sets of
hours for multiple employers. The Department does not expect this rule
to generate transfers to or from workers that currently have one or
more joint employers under either of these scenarios.
Employees who work one set of hours for an employer that
simultaneously benefit another person are not likely to see a change in
the wages owed them under the FLSA as a result of this rule. In this
scenario, the employee's employer is liable to the employee for all
wages due under the Act for the hours worked. If a joint employer
exists, then that person is jointly and severally liable with the
employer for all wages due under the Act for those hours worked. To the
extent that the proposed standard for determining joint employer status
reduces the number of persons who are joint employers in this scenario,
neither the wages due the employee under the Act nor the employer's
liability for the entire wages due would change. If the person is no
longer a joint employer as a result of the proposal, the employee would
no longer have a legal right to collect the wages due under the Act
from that person but would still be able to collect the entire wages
due from the employer. In sum, changing the standard for determining
whether a person is a joint employer in this scenario would not impact
the wages due the employee under the Act, and assuming that all
employers always fulfill their legal obligations under the Act, would
not result in any reduction
[[Page 14055]]
in wages received by the employee because the employer would pay the
wages in full. The Department recognizes that there could be a transfer
between the employer and any joint employers, but lacks information
about how many individuals or entities would be affected and to what
degree.
Employees who work separate sets of hours for multiple employers
are not affected because the Department is not proposing any
substantive revisions to the standard for determining joint employer
status in this scenario. Therefore, no joint liability (or lack
thereof) in this scenario will be altered by the promulgation of this
rule.
3. Other Potential Impacts
To the extent revising the Department's regulation provides more
clarity, the revision could promote innovation and certainty in
business relationships, which also benefits employees. The modern
economy involves a web of complex interactions filled with a variety of
unique business organizations and contractual relationships. When an
employer contemplates a business relationship with another person, the
other person may not be able to assess what degree of association with
the employer will result in joint and several liability for the
employer's employees. Indeed, the other person may be concerned with
such liability despite having insignificant control over the employer's
employee. This uncertainty could impact the other person's willingness
to engage in any number of business practices vis-[agrave]-vis the
employer--such as providing a sample employee handbook, or other forms,
to the employer as part of a franchise arrangement; allowing the
employer to operate a facility on its premises; using or establishing
an association health plan or association retirement plan used by the
employer; or jointly participating with an employer in an
apprenticeship program--even though these business practices could
benefit the employer's employees. Similarly, uncertainty regarding
joint liability could also impact that person's willingness to bargain
for certain contractual provisions with the employer, such as requiring
workplace safety practices, a wage floor, sexual harassment policies,
morality clauses, or other measures intended to encourage compliance
with the law or to promote other desired business practices. The
Department's proposal may provide additional certainty as businesses
consider whether to adopt such business practices.
The Department expects that this proposed rule would reduce burdens
on organizations. After initial rule familiarization, this proposal may
reduce the time spent by organizations to determine whether they are
joint employers. Likewise, clarity may reduce FLSA-related litigation
regarding joint employer status, and reduce litigation among
organizations regarding allocation of FLSA-related liability and
damages. The rule may also promote greater uniformity among court
decisions, providing clarity for organizations operating in multiple
jurisdictions. This uniformity could reduce organizations' costs
because they would not have to consider multiple, jurisdiction-specific
legal standards before entering into economic relationships.
Because the Department does not have data on the number of joint
employers, and the number of joint employer situations that could be
affected, cost-savings attributable to this proposed rule have not been
quantified. The Department requests comments, studies, and data on the
prevalence of joint employers, how this proposed rule would affect
members of the public, and how to quantify those impacts, if such
quantification is possible. The Department also requests comments and
data on any additional potential benefits of this proposed rule.
VII. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980 (RFA) as amended by the
Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),
hereafter jointly referred to as the RFA, requires that an agency
prepare an initial regulatory flexibility analysis (IRFA) when
proposing, and a final regulatory flexibility analysis (FRFA) when
issuing, regulations that will have a significant economic impact on a
substantial number of small entities. The agency is also required to
respond to public comment on the NPRM. The Chief Counsel for Advocacy
of the Small Business Administration was notified of this proposed rule
upon submission of the rule to OMB under Executive Order 12866. The
Department invites commenters to provide input on data analysis and/or
methodology used throughout this IRFA.
A. Reasons Why Action by the Agency Is Being Considered
The Department has determined that its interpretation of joint
employer status requires revision as it applies to one of the joint
employer scenarios under the Act (one set of hours worked for an
employer that simultaneously benefits another person). The Department
is concerned that the current regulation does not adequately address
this scenario, and the Department believes that its proposed revisions
would provide needed clarity and ensure consistency with the Act's
text.
B. Statement of Objectives and Legal Basis for the Proposed Rule
29 CFR part 791 contains the Department's official interpretations
for determining joint employer status under the FLSA. It is intended to
serve as a practical guide to employers and employees as to how the
Department will look to apply it. However, the Department has not
meaningfully revised this part since its promulgation in 1958, over 60
years ago.
The Department's objective is to update its joint employer rule in
29 CFR part 791 to provide guidance for determining joint employer
status in one of the joint employer scenarios under the Act (one set of
hours worked for an employer that simultaneously benefits another
person) in a manner that is clear and consistent with section 3(d) of
the Act.
C. Description of the Number of Small Entities to Which the Proposed
Rule Will Apply
The RFA defines a ``small entity'' as a (1) small not-for-profit
organization, (2) small governmental jurisdiction, or (3) small
business. The Department used the entity size standards defined by SBA,
in effect as of October 1, 2017, to classify entities as small. SBA
establishes separate standards for 6-digit NAICS industry codes, and
standard cutoffs are typically based on either the average number of
employees, or the average annual receipts. For example, small
businesses are generally defined as having fewer than 500, 1,000, or
1,250 employees in manufacturing industries and less than $7.5 million
in average annual receipts for nonmanufacturing industries. However,
some exceptions do exist, the most notable being that depository
institutions (including credit unions, commercial banks, and non-
commercial banks) are classified by total assets (small defined as less
than $550 million in assets). Small governmental jurisdictions are
another noteworthy exception. They are defined as the governments of
cities, counties, towns, townships, villages, school districts, or
special districts with populations of less than 50,000 people.
The Department obtained data from several sources to determine the
number
[[Page 14056]]
of small entities. However, the Statistics of U.S. Businesses (SUSB,
2012) was used for most industries (the 2012 data is the most recent
SUSB data that includes information on receipts). Industries for which
the Department used alternative sources include credit unions,\106\
commercial banks and savings institutions,\107\ agriculture,\108\ and
public administration.\109\ The Department used the latest available
data in each case, so data years differ between sources.
---------------------------------------------------------------------------
\106\ Nat'l Credit Union Ass'n. (2012). 2012 Year End Statistics
for Federally Insured Credit Unions, https://www.ncua.gov/analysis/Pages/call-report-data/reports/chart-pack/chart-pack-2018-q1.pdf.
\107\ Fed. Depository Ins. Corp. (2018). Statistics on
Depository Institutions--Compare Banks. Available at: https://www5.fdic.gov/SDI/index.asp. Data are from 3/31/18. Data is from 3/
11/2018 for employment, and data is from 6/30/2017 for the share of
firms and establishments that are ``small''.
\108\ U.S. Dep't of Agric. (2014). 2012 Census of Agriculture:
United States Summary and State Data: Volume 1, Geographic Area
Series, Part 51. Available at: http://www.agcensus.usda.gov/Publications/2012/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf.
\109\ Hogue, C. (2012). Government Organization Summary Report:
2012. Available at: http://www2.census.gov/govs/cog/g12_org.pdf.
---------------------------------------------------------------------------
For each industry, the SUSB data tabulates total establishment and
firm counts by both enterprise employment size (e.g., 0-4 employees, 5-
9 employees) and receipt size (e.g., less than $100,000, $100,000-
$499,999).\110\ The Department combined these categories with the SBA
size standards to estimate the proportion of establishments and firms
in each industry that are considered small. The general methodological
approach was to classify all establishments or firms in categories
below the SBA cutoff as a ``small entity.'' If a cutoff fell in the
middle of a defined category, the Department assumed a uniform
distribution of employees across that bracket to determine what
proportion should be classified as small. The Department assumed that
the small entity share of credit card issuing and other depository
credit intermediation institutions (which were not separately
represented in FDIC asset data), is similar to that of commercial
banking and savings institutions.
---------------------------------------------------------------------------
\110\ The SUSB defines employment as of the week of March 12th
of the particular year for which it is published.
---------------------------------------------------------------------------
D. Costs for Small Entities Affected by the Proposed Rule
Table 2 presents the estimated number of small entities affected by
the proposed rule. Based on the methodology described above, the
Department found that 5.9 million of the 6.1 million firms (99 percent)
and 6.3 million of the 7.8 million establishments (81 percent) qualify
as small by SBA standards. As discussed in Section V.B, these do not
exclude entities that currently do not have joint employees, as those
will still need to familiarize themselves with the text of the new
rule. Moreover, we assume that the cost structure of regulatory
familiarization will not differ between small and large entities (i.e.,
small entities will need the same amount of time for review and will
assign the same type of specialist to the task).
Table 2--Regulatory Familiarization Costs for Small Entities, Average by Firm and Establishment ($1000s)
--------------------------------------------------------------------------------------------------------------------------------------------------------
By firm By establishment
-------------------------------------------------------------------------------------------------
NAICS sector Percent of Cost per firm Percent of Cost per estab
Firms total \a\ Establishments total \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Agric./Forestry/Fishing/Hunting....................... 18,307 83.9 $53 18,930 83.8 $53
Mining/Quarrying/Oil & Gas Extraction................. 19,625 96.6 53 21,974 80.7 53
Utilities............................................. 5,487 93.1 53 7,762 42.7 53
Construction.......................................... 673,521 98.6 53 676,913 97.2 53
Manufacturing......................................... 241,932 96.8 53 264,112 90.6 53
Wholesale Trade....................................... 292,615 96.5 53 328,327 79.6 53
Retail Trade.......................................... 636,069 97.7 53 688,835 64.4 53
Transportation & Warehousing.......................... 174,523 96.2 53 183,810 79.6 53
Information........................................... 73,288 96.7 53 83,559 57.1 53
Finance and Insurance................................. 229,002 96.2 53 269,991 56.6 53
Real Estate & Rental & Leasing........................ 293,693 97.9 53 310,740 79.6 53
Prof., Scientific, & Technical Services............... 790,834 98.1 53 819,115 90.7 53
Management of Companies & Ent......................... 18,004 66.2 53 34,124 61.6 53
Administrative & Support Services..................... 332,072 97.4 53 347,167 84.8 53
Educational Services.................................. 87,566 95.4 53 90,559 87.6 53
Health Care & Social Assistance....................... 638,699 96.5 53 726,524 81.6 53
Arts, Entertainment, & Recreation..................... 123,530 97.8 53 126,281 92.0 53
Accommodation & Food Services......................... 520,690 98.7 53 556,588 79.1 53
Other Services........................................ 681,696 98.7 53 700,496 92.9 53
State & Local Governments \b\......................... 72,844 80.8 53 72,844 80.8 53
All Industries.................................... 5,923,996 97.2 53 6,328,653 80.8 53
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Annualized Costs, 7 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Over 10 years 7 7
In perpetuity 3 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Annualized Costs, 3 Percent Discount Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Over 10 years 6 6
In perpetuity 2 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Each entity is expected to allocate one hour of Compensation, Benefits, and Job Analysis Specialists' (SOC 13-1141) time for regulatory
familiarization. The unloaded hourly rate for this occupation is $32.29, and the wage load factor is 1.63 (0.46 for benefits and 0.17 for overhead).
Therefore, the per-entity cost is $52.63.
\b\ Government entities are not classified as firms or establishments; therefore, we use the total number of entities for both calculations.
[[Page 14057]]
The Department estimates that in Year 1, small entities will incur
a minimum of approximately $312 million in total regulatory
familiarization costs, and a maximum of approximately $333 million.
Professional, Scientific, and Technical Services is the industry that
will incur the highest total costs ($41.6 million to $43.1 million).
Additionally, the Department estimated average annualized costs to
small entities of this rule over 10 years and in perpetuity. Over 10
years, this rule will have an average annual cost of $41.5 million to
$44.3 million, calculated at a 7 percent discount rate ($35.5 million
to $37.9 million calculated at a 3 percent discount rate). In
perpetuity, this rule will have an average annual cost of $20.4 million
to $21.8 million, calculated at a 7 percent discount rate ($9.1 million
to $9.7 million calculated at a 3 percent discount rate).
Based on the analysis above, the Department does not expect that
small entities will incur large individual costs as a result of this
rule. Even though all entities will incur familiarization costs, these
costs will be relatively small on a per-entity basis (an average of
$52.63 per entity). Furthermore, no costs will be incurred past the
first year of the promulgation of this rule. As a share of revenues,
costs do not exceed 0.003 percent on average for all industries (Table
3). The industry where costs are the highest percent of revenues is
Management of Companies and Enterprises where costs range from a lower
bound of 0.015 percent to an upper bound of 0.028 percent of revenues.
Additionally, the Department calculated the revenue per firm/
establishment for entities with 0 to 4 employees, as per SUSB data. The
industry that has had the smallest revenue per entity is Accommodation
and Food Services (NAICS 72)--$221,600 per firm and $221,100 per
establishment, in 2017 dollars. In both cases, the per-entity cost
($53) is approximately 0.024% of revenue. Accordingly, the Department
does not expect that the proposed rule would have a significant
economic cost impact on a substantial number of small entities.
Table 3--Total Regulatory Familiarization Costs for Small Entities, as Share of Revenues
----------------------------------------------------------------------------------------------------------------
Total revenue Cost as percent of revenue \c\
for small ---------------------------------
NAICS sector entities By
(millions) \a\ By firms establishments
----------------------------------------------------------------------------------------------------------------
Agriculture, Forestry, Fishing & Hunting...................... $21,978 0.004 0.005
Mining, Quarrying, & Oil/Gas Extraction....................... 183,236 0.001 0.001
Utilities..................................................... 124,928 0.000 0.000
Construction.................................................. 754,055 0.005 0.005
Manufacturing................................................. 1,836,516 0.001 0.001
Wholesale Trade............................................... 2,584,835 0.001 0.001
Retail Trade.................................................. 1,419,180 0.002 0.003
Transportation & Warehousing.................................. 235,647 0.004 0.004
Information................................................... 198,347 0.002 0.002
Finance & Insurance........................................... 260,753 0.005 0.005
Real Estate & Rental & Leasing................................ 195,889 0.008 0.008
Professional, Scientific, & Technical Services................ 636,424 0.007 0.007
Management of Companies & Enterprises......................... 6,492 0.015 0.028
Administrative & Support Services............................. 259,794 0.007 0.007
Educational Services.......................................... 79,796 0.006 0.006
Health Care & Social Assistance............................... 628,701 0.005 0.006
Arts, Entertainment, & Recreation............................. 92,957 0.007 0.007
Accommodation & Food Services................................. 367,996 0.007 0.008
Other Services (except Public Administration)................. 368,806 0.010 0.010
State & Local Governments..................................... (\b\) (\b\) (\b\)
All Industries............................................ 10,256,328 0.003 0.003
----------------------------------------------------------------------------------------------------------------
\a\ Inflated to 2017 dollars using the GDP deflator.
\b\ Government entities are considered small if the relevant population is less than 50,000. Government revenue
data are not readily available by size of government entity.
\c\ Calculated by dividing total revenues per industry by total costs per industry, by firm and by
establishment, as shown in Table 2.
E. Analysis of Regulatory Alternatives
In developing this NPRM, the Department considered proposing
alternative tests for the first joint employer scenario--where an
employee works one set of hours that simultaneously benefits another
person. Those alternative tests, such as the Second and Fourth
Circuits' joint employer tests, have more factors than the Department's
proposed test, may have a second step, and rely substantially on the
``suffer or permit'' language in FLSA section 3(g).\111\ The
Department, however, believes that section 3(d), not section 3(g), is
the touchstone for joint employer status and that its proposed four-
factor balancing test is preferable, in part because it is consistent
with section 3(d). The Department's proposed test is simpler and easier
to apply because it has fewer factors and only one step, whereas the
alternative tests involve a consideration of additional factors and are
therefore more complex and indeterminate.
---------------------------------------------------------------------------
\111\ See Zheng, 355 F.3d at 69; Salinas, 848 F.3d at 136.
---------------------------------------------------------------------------
The Department also considered applying the four-factor balancing
test in Bonnette without modification. The Department instead proposes
a four-factor test that closely tracks the language of Bonnette with a
modification to the first factor. Whereas the Bonnette test considers
whether the potential joint employer had the ``power'' to hire and
fire, the Department proposes a test that considers whether the
employer actually exercised the power to hire and fire. The Department
believes that this modification will help ensure that its joint
employer test is fully consistent
[[Page 14058]]
with the text of section 3(d), which requires a potential joint
employer to be ``acting . . . in relation to an employee.'' \112\ By
rooting the joint employer standard in the text of the statute, the
Department believes that its proposal could provide workers and
organizations with more clarity in determining who is a joint employer
under the Act, thereby promoting innovation and certainty in businesses
relationships.
---------------------------------------------------------------------------
\112\ 29 U.S.C. 203(d).
---------------------------------------------------------------------------
VIII. Unfunded Mandates
The Unfunded Mandates Reform Act of 1995 (UMRA) \113\ requires
agencies to prepare a written statement for rules for which a general
notice of proposed rulemaking was published and that include any
federal mandate that may result in increased expenditures by state,
local, and tribal governments, in the aggregate, or by the private
sector, of $161 million ($100 million in 1995 dollars adjusted for
inflation) or more in at least one year. This statement must: (1)
Identify the authorizing legislation; (2) present the estimated costs
and benefits of the rule and, to the extent that such estimates are
feasible and relevant, its estimated effects on the national economy;
(3) summarize and evaluate state, local, and tribal government input;
and (4) identify reasonable alternatives and select, or explain the
non-selection, of the least costly, most cost-effective, or least
burdensome alternative.
---------------------------------------------------------------------------
\113\ See 2 U.S.C. 1501.
---------------------------------------------------------------------------
A. Authorizing Legislation
This proposed rule is issued pursuant to the Fair Labor Standards
Act, 29 U.S.C. 201, et seq.
B. Assessment of Quantified \114\ Costs and Benefits
---------------------------------------------------------------------------
\114\ Only the rule familiarization cost is quantified, but the
Department believes that there are potential cost savings that it
could not quantify due to lack of data at this time.
---------------------------------------------------------------------------
For purposes of the UMRA, this rule includes a federal mandate that
is expected to result in increased expenditures by the private sector
of more than $161 million in at least one year, but the rule will not
result in increased expenditures by state, local, and tribal
governments, in the aggregate, of $161 million or more in any one year.
Based on the cost analysis from this proposed rule, the Department
determined that the proposed rule will result in Year 1 total costs for
state and local governments totaling $4.7 million, all of them incurred
for regulatory familiarization (see Table 1). There will be no
additional costs incurred in subsequent years.
The Department determined that the proposed rule will result in
Year 1 total costs for the private sector between $315.9 million and
$407.4 million, all of them incurred for regulatory familiarization.
There will be no additional costs incurred in subsequent years.
UMRA requires agencies to estimate the effect of a regulation on
the national economy if, at its discretion, such estimates are
reasonably feasible and the effect is relevant and material.\115\
However, OMB guidance on this requirement notes that such macroeconomic
effects tend to be measurable in nationwide econometric models only if
the economic effect of the regulation reaches 0.25 percent to 0.5
percent of GDP, or in the range of $48.5 billion to $97.0 billion
(using 2017 GDP). A regulation with smaller aggregate effect is not
likely to have a measurable effect in macroeconomic terms unless it is
highly focused on a particular geographic region or economic sector,
which is not the case with this proposed rule.
---------------------------------------------------------------------------
\115\ See 2 U.S.C. 1532(a)(4).
---------------------------------------------------------------------------
The Department's PRIA estimates that the total costs of the
proposed rule will be between $320.7 million and $412.1 million (see
Table 1). All costs will occur in the first year of the promulgation of
this rule, and there will be no additional costs in subsequent years.
Given OMB's guidance, the Department has determined that a full
macroeconomic analysis is not likely to show that these costs would
have any measurable effect on the economy.
C. Least Burdensome Option Explained
This Department believes that it has chosen the least burdensome
but still cost-effective methodology to revise its rule for determining
joint employer status under the FLSA consistent with the Department's
statutory obligation. Although the proposed regulation would impose
costs for regulatory familiarization, the Department believes that its
proposal would reduce the overall burden on organizations by
simplifying the standard for determining joint employer status. The
Department believes that, after familiarization, this rule may reduce
the time spent by organizations to determine whether they are joint
employers. Additionally, revising the Department's guidance to provide
more clarity could promote innovation and certainty in business
relationships.
IX. Executive Order 13132, Federalism
The Department has (1) reviewed this proposed rule in accordance
with Executive Order 13132 regarding federalism and (2) determined that
it does not have federalism implications. The proposed rule would not
have substantial direct effects on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government.
X. Executive Order 13175, Indian Tribal Governments
This proposed rule would not have substantial direct effects on one
or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.
List of Subjects in 29 CFR Part 791
Wages.
0
For the reasons set forth in the preamble, the Department proposes to
revise part 791 of Title 29 of the Code of Federal Regulations as
follows:
PART 791--JOINT EMPLOYER STATUS UNDER THE FAIR LABOR STANDARDS ACT
Sec
791.1 Introductory statement
791.2 Determining Joint Employer Status under the FLSA
791.3 Severability
Authority: 52 Stat. 1060, as amended; 29 U.S.C. 201-219;
Reorganization Plan No. 6 of 1950; Secretary's Order 01-2014 (Dec.
19, 2014), 79 FR 77527.
Sec. 791.1 Introductory statement.
This part contains the Department of Labor's general
interpretations of the text governing joint employer status under the
Fair Labor Standards Act. See 29 U.S.C. 201-19. The Administrator of
the Wage and Hour Division intends that these interpretations will
serve as ``a practical guide to employers and employees as to how [the
Wage and Hour Division] will seek to apply [the Act].'' Skidmore v.
Swift & Co., 323 U.S. 134, 138 (1944). The Administrator believes that
they are correct interpretations of the law and will accordingly use
them to guide the performance of his or her duties under the Act until
he or she concludes upon reexamination that they are incorrect or is
otherwise directed by an authoritative judicial decision. To the extent
that prior administrative rulings, interpretations, practices, or
enforcement policies relating to joint
[[Page 14059]]
employer status under the Act are inconsistent or in conflict with the
interpretations stated in this part, they are hereby rescinded. These
interpretations stated in this part may be relied upon in accordance
with section 10 of the Portal-to-Portal Act, 29 U.S.C. 251-262, so long
as the Department does not modify, amend, or rescind them, and judicial
authority does not determine that they are incorrect.
Sec. 791.2 Determining Joint Employer Status under the FLSA.
There are two joint employer scenarios under the FLSA.
(a)(1) In the first joint employer scenario, the employee has an
employer who suffers, permits, or otherwise employs the employee to
work, see 29 U.S.C. 203(e)(1), (g), but another person simultaneously
benefits from that work. The other person is the employee's joint
employer only if that person is acting directly or indirectly in the
interest of the employer in relation to the employee. See 29 U.S.C.
203(d). In this situation, the following four factors are relevant to
the determination. Those four factors are whether the other person:
(i) Hires or fires the employee;
(ii) Supervises and controls the employee's work schedule or
conditions of employment;
(iii) Determines the employee's rate and method of payment; and
(iv) Maintains the employee's employment records.
(2) The potential joint employer must actually exercise--directly
or indirectly--one or more of these indicia of control to be jointly
liable under the Act. See 29 U.S.C. 203(d). The potential joint
employer's ability, power, or reserved contractual right to act in
relation to the employee is not relevant for determining joint employer
status. No single factor is dispositive in determining the economic
reality of the potential joint employer's status under the Act. Whether
a person is a joint employer under the Act will depend on all the facts
in a particular case, and the appropriate weight to give each factor
will vary depending on the circumstances.
(b) Additional factors may be relevant for determining joint
employer status in this scenario, but only if they are indicia of
whether the potential joint employer is:
(1) Exercising significant control over the terms and conditions of
the employee's work; or
(2) Otherwise acting directly or indirectly in the interest of the
employer in relation to the employee.
(c) Whether the employee is economically dependent on the potential
joint employer is not relevant for determining the potential joint
employer's liability under the Act. Accordingly, to determine joint
employer status, no factors should be used to assess economic
dependence. Examples of factors that are not relevant because they
assess economic dependence include, but are not limited to, whether the
employee:
(1) Is in a specialty job or a job that otherwise requires special
skill, initiative, judgment, or foresight;
(2) Has the opportunity for profit or loss based on his or her
managerial skill; and
(3) Invests in equipment or materials required for work or the
employment of helpers.
(d) (1) A joint employer may be an individual, partnership,
association, corporation, business trust, legal representative, or any
organized group of persons. See 29 U.S.C. 203(a), (d).
(2) The potential joint employer's business model--for example,
operating as a franchisor--does not make joint employer status more or
less likely under the Act.
(3) The potential joint employer's contractual agreements with the
employer requiring the employer to, for example, set a wage floor,
institute sexual harassment policies, establish workplace safety
practices, require morality clauses, adopt similar generalized business
practices, or otherwise comply with the law, do not make joint employer
status more or less likely under the Act.
(4) The potential joint employer's practice of providing a sample
employee handbook, or other forms, to the employer; allowing the
employer to operate a business on its premises (including ``store
within a store'' arrangements); offering an association health plan or
association retirement plan to the employer or participating in such a
plan with the employer; jointly participating in an apprenticeship
program with the employer; or any other similar business practice, does
not make joint employer status more or less likely under the Act.
(e)(1) In the second joint employer scenario, one employer employs
a worker for one set of hours in a workweek, and another employer
employs the same worker for a separate set of hours in the same
workweek. The jobs and the hours worked for each employer are separate,
but if the employers are joint employers, both employers are jointly
and severally liable for all of the hours the employee worked for them
in the workweek.
(2) In this second scenario, if the employers are acting
independently of each other and are disassociated with respect to the
employment of the employee, each employer may disregard all work
performed by the employee for the other employer in determining its own
responsibilities under the Act. However, if the employers are
sufficiently associated with respect to the employment of the employee,
they are joint employers and must aggregate the hours worked for each
for purposes of determining compliance with the Act. The employers will
generally be sufficiently associated if:
(i) There is an arrangement between them to share the employee's
services;
(ii) One employer is acting directly or indirectly in the interest
of the other employer in relation to the employee; or
(iii) They share control of the employee, directly or indirectly,
by reason of the fact that one employer controls, is controlled by, or
is under common control with the other employer. Such a determination
depends on all of the facts and circumstances. Certain business
relationships, for example, which have little to do with the employment
of specific workers--such as sharing a vendor or being franchisees of
the same franchisor--are alone insufficient to establish that two
employers are sufficiently associated to be joint employers.
(f) For each workweek that a person is a joint employer of an
employee, that joint employer is jointly and severally liable with the
employer and any other joint employers for compliance with all of the
applicable provisions of the Act, including the overtime provisions,
for all of the hours worked by the employee in that workweek. In
discharging this joint obligation in a particular workweek, the
employer and joint employers may take credit toward minimum wage and
overtime requirements for all payments made to the employee by the
employer and any joint employers.
(g) The following illustrative examples demonstrate the application
of the principles described in paragraphs (a)-(f) of this section under
the facts presented and are limited to substantially similar factual
situations:
(1)(i) Example. An individual works 30 hours per week as a cook at
one restaurant establishment, and 15 hours per week as a cook at a
different restaurant establishment affiliated with the same nationwide
franchise. These establishments are locally owned and managed by
different franchisees that do not coordinate in any way with respect
[[Page 14060]]
to the employee. Are they joint employers of the cook?
(ii) Application. Under these facts, the restaurant establishments
are not joint employers of the cook because they are not associated in
any meaningful way with respect to the cook's employment. The
similarity of the cook's work at each restaurant, and the fact that
both restaurants are part of the same nationwide franchise, are not
relevant to the joint employer analysis, because those facts have no
bearing on the question whether the restaurants are acting directly or
indirectly in each other's interest in relation to the cook.
(2)(i) Example. An individual works 30 hours per week as a cook at
one restaurant establishment, and 15 hours per week as a cook at a
different restaurant establishment owned by the same person. Each week,
the restaurants coordinate and set the cook's schedule of hours at each
location, and the cook works interchangeably at both restaurants. The
restaurants decided together to pay the cook the same hourly rate. Are
they joint employers of the cook?
(ii) Application. Under these facts, the restaurant establishments
are joint employers of the cook because they share common ownership,
coordinate the cook's schedule of hours at the restaurants, and jointly
decide the cook's terms and conditions of employment, such as the pay
rate. Because the restaurants are sufficiently associated with respect
to the cook's employment, they must aggregate the cook's hours worked
across the two restaurants for purposes of complying with the Act.
(3)(i) Example. An office park company hires a janitorial services
company to clean the office park building after-hours. According to a
contractual agreement with the office park and the janitorial company,
the office park agrees to pay the janitorial company a fixed fee for
these services and reserves the right to supervise the janitorial
employees in their performance of those cleaning services. However,
office park personnel do not set the janitorial employees' pay rates or
individual schedules and do not in fact supervise the workers'
performance of their work in any way. Is the office park a joint
employer of the janitorial employees?
(ii) Application. Under these facts, the office park is not a joint
employer of the janitorial employees because it does not hire or fire
the employees, determine their rate or method of payment, or exercise
control over their conditions of employment. The office park's reserved
contractual right to control the employee's conditions of employment
does not demonstrate that it is a joint employer.
(4)(i) Example. A country club contracts with a landscaping company
to maintain its golf course. The contract does not give the country
club authority to hire or fire the landscaping company's employees or
to supervise their work on the country club premises. However, in
practice a club official oversees the work of employees of the
landscaping company by sporadically assigning them tasks throughout
each workweek, providing them with periodic instructions during each
workday, and keeping intermittent records of their work. Moreover, at
the country club's direction, the landscaping company agrees to
terminate an individual worker for failure to follow the club
official's instructions. Is the country club a joint employer of the
landscaping employees?
(ii) Application. Under these facts, the country club is a joint
employer of the landscaping employees because the club exercises
sufficient control, both direct and indirect, over the terms and
conditions of their employment. The country club directly supervises
the landscaping employees' work and determines their schedules on what
amounts to a regular basis. This routine control is further established
by the fact that the country club indirectly fired one of landscaping
employees for not following its directions.
(5)(i) Example. A packaging company requests workers on a daily
basis from a staffing agency. The packaging company determines each
worker's hourly rate of pay, supervises their work, and uses
sophisticated analysis of expected customer demand to continuously
adjust the number of workers it requests and the specific hours for
each worker, sending workers home depending on workload. Is the
packaging company a joint employer of the staffing agency's employees?
(ii) Application. Under these facts, the packaging company is a
joint employer of the staffing agency's employees because it exercises
sufficient control over their terms and conditions of employment by
setting their rate of pay, supervising their work, and controlling
their work schedules.
(6)(i) Example. An Association, whose membership is subject to
certain criteria such as geography or type of business, provides
optional group health coverage and an optional pension plan to its
members to offer to their employees. Employer B and Employer C both
meet the Association's specified criteria, become members, and provide
the Association's optional group health coverage and pension plan to
their respective employees. The employees of both B and C choose to opt
in to the health and pension plans. Does the participation of B and C
in the Association's health and pension plans make the Association a
joint employer of B's and C's employees, or B and C joint employers of
each other's employees?
(ii) Application. Under these facts, the Association is not a joint
employer of B's or C's employees, and B and C are not joint employers
of each other's employees. Participation in the Association's optional
plans does not involve any control by the Association, direct or
indirect, over B's or C's employees. And while B and C independently
offer the same plans to their respective employees, there is no
indication that B and C are coordinating, directly or indirectly, to
control the other's employees. B and C are therefore not acting
directly or indirectly in the interest of the other in relation to any
employee.
(7(i)) Example. Entity A, a large national company, contracts with
multiple other businesses in its supply chain. As a precondition of
doing business with A, all contracting businesses must agree to comply
with a code of conduct, which includes a minimum hourly wage higher
than the federal minimum wage, as well as a promise to comply with all
applicable federal, state, and local laws. Employer B contracts with A
and signs the code of conduct. Does A qualify as a joint employer of
B's employees?
(ii) Application. Under these facts, A is not a joint employer of
B's employees. Entity A is not acting directly or indirectly in the
interest of B in relation to B's employees--hiring, firing, maintaining
records, or supervising or controlling work schedules or conditions of
employment. Nor is A exercising significant control over Employer B's
rate or method of pay--although A requires B to maintain a wage floor,
B retains control over how and how much to pay its employees. Finally,
because there is no indication that A's requirement that B commit to
comply with all applicable federal, state, and local law exerts any
direct or indirect control over B's employees, this requirement has no
bearing on the joint employer analysis.
(8)(i) Example. Franchisor A is a global organization representing
a hospitality brand with several thousand hotels under franchise
agreements. Franchisee B owns one of these hotels and is a licensee of
A's brand. In addition, A provides B with a sample employment
application, a sample
[[Page 14061]]
employee handbook, and other forms and documents for use in operating
the franchise. The licensing agreement is an industry-standard document
explaining that B is solely responsible for all day-to-day operations,
including hiring and firing of employees, setting the rate and method
of pay, maintaining records, and supervising and controlling conditions
of employment. Is A a joint employer of B's employees?
(ii) Application. Under these facts, A is not a joint employer of
B's employees. A does not exercise direct or indirect control over B's
employees. Providing samples, forms, and documents does not amount to
direct or indirect control over B's employees that would establish
joint liability.
(9)(i) Example. A retail company owns and operates a large store.
The retail company contracts with a cell phone repair company, allowing
the repair company to run its business operations inside the building
in an open space near one of the building entrances. As part of the
arrangement, the retail company requires the repair company to
establish a policy of wearing specific shirts and to provide the shirts
to its employees that look substantially similar to the shirts worn by
employees of the retail company. Additionally, the contract requires
the repair company to institute a code of conduct for its employees
stating that the employees must act professionally in their
interactions with all customers on the premises. Is the retail company
a joint employer of the repair company's employees?
(ii) Application. Under these facts, the retail company is not a
joint employer of the cell phone repair company's employees. The retail
company's requirement that the repair company provide specific shirts
to its employees and establish a policy that its employees to wear
those shirts does not, on its own, demonstrate substantial control over
the repair company's employees' terms and conditions of employment.
Moreover, requiring the repair company to institute a code of conduct
or allowing the repair company to operate on its premises does not make
joint employer status more or less likely under the Act. There is no
indication that the retail company hires or fires the repair company's
employees, controls any other terms and conditions of their employment,
determines their rate and method of payment, or maintains their
employment records.
Sec. 791.3 Severability.
If any provision of this part is held to be invalid or
unenforceable by its terms, or as applied to any person or
circumstance, or stayed pending further agency action, the provision
shall be construed so as to continue to give the maximum effect to the
provision permitted by law, unless such holding shall be one of utter
invalidity or unenforceability, in which event the provision shall be
severable from part 791 and shall not affect the remainder thereof.
Signed at Washington, DC, this 29th day of March, 2019.
Keith E. Sonderling,
Acting Administrator, Wage and Hour Division.
[FR Doc. 2019-06500 Filed 4-8-19; 8:45 am]
BILLING CODE 4510-27-P
