Employer Risks Remain Despite New Joint Employment Rule

New regulations interpreting joint employer status under the Fair Labor Standards Act (FLSA) will kick in on March 16, with a four-factor balancing test used to determine employer status.

Under the Department of Labor’s (DOL) just-published final rule, a company may be considered a joint employer for purposes of FLSA liability if it:

1. Hires and fires the employee.
2. Supervises and controls the employee’s schedule.
3. Determines the employee’s pay.
4. Manages employment records.

The test considers all factors collectively, and while it is more pro-employer than prior versions, wage and hour and employment practices liability risks remain for companies benefitting from work performed by others’ employees.

A Turbulent History

The joint employer concept has vacillated in recent years. In 2015, the National Labor Relations Board’s Browning-Ferris decision held that an employer’s mere right to control (rather than the exercise of actual control) was enough to establish joint employer liability. The board is now expected to publish a rule that alters the definition of joint employment and makes it more difficult to hold multiple businesses responsible for alleged labor and employment law violations.

In 2016, the DOL’s Wage and Hour Division issued an administrator’s interpretation, noting joint employment “should be defined expansively” and proposing examination of workers’ economic dependence on joint employers. This interpretation was ultimately withdrawn in 2017, after objections from the business community.

The DOL’s just-published final rule rejects various factors that had previously spurred litigation against potential joint employers, including their business models and unexercised control over workers, and requires actual control to establish joint employment.

However, businesses will still need to consider their potential joint employer responsibility and reexamine the complex relationships at the heart of this issue. Companies must consider varying interpretations of joint employment under state wage and hour laws. As the joint employer standard continues to evolve, companies receiving services from workers they do not directly employ should be mindful of the risk of being named as additional parties in wage and hour and employment litigation. 

Wage and Hour Protection

Despite a drop in claims frequency in the last four years, wage and hour lawsuits persist. And they can be costly to employers: The value of 2019’s top 10 settlements nearly doubled from the previous year, from $253 million to $449 million. Wage and hour claims by employees include allegations that employers failed to pay overtime, did not provide adequate meal and rest breaks, or misclassified employees as exempt or as independent contractors.

With appropriate underwriting, wage and hour liability insurance can help transfer joint employment risks and provide coverage for defense costs, settlements, and judgments associated with this costly litigation. As pricing and retentions for the coverage continue to fall, new insurers are entering the marketplace and claims continue to be paid, organizations with joint employment risks should consult with their insurance advisors to ensure adequate protection.