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FLSA Joint Employer Liability Now Affecting Even More Businesses

The Department of Labor is expanding the applicability of joint employment to apply "expansively" even beyond traditional definitions and interpretations of who or what is a joint employer. The DOL states that this interpretation is an attempt to keep up with the increasing popularity of non-traditional employment relationships such as the use of staffing agencies and independent contractors and the declining use of "traditional" employment relationships. Employers must evaluate their potential status as joint employers to avoid potential liability. Under the FLSA, if an employee is jointly employed by two or more employers, all the employee's weekly hours worked for every joint employer must be considered when computing minimum wage and overtime pay. Further, each and every joint employer of an employee is jointly and severally liable for any violations of the FLSA (meaning one employer, usually the one with the "deepest pockets", may be forced to pay an entire judgment or award though other employers were also at fault for the violations).

Joint employment relationships typically take two forms; horizontal and vertical. In a horizontal joint employment situation two or more employers separately employ a worker but are "sufficiently associated with or related to" or overlap each other. To determine if a horizontal relationship is present, the DOL and federal courts will look to the association or overlapping relationship between the two employing entities. The DOL gives examples of potential horizontal joint employers in the case of a waitress working for two separate restaurants owned and managed by the same entity, where two home healthcare providers or nursing homes have an agreement to share staff, or where a security guard company and the person hiring the security protection shared control over the security worker. The analysis of whether or not a horizontal joint employment relationship exists is extremely fact-intensive and involves the consideration of many non-determinative factors. These new policy considerations and joint employer tests are still being developed in the courts, but employers should contact qualified employment counsel to help protect themselves from potential FLSA related liability as joint employers.

Vertical joint employment relationships occur when one employer, often a staffing agency or subcontractor, arranges with the potential joint employer to provide labor or services. To determine vertical joint employer status, the objective is to determine whether the employee is "economically dependent" on the potential joint employer. Federal courts in different federal districts apply differing economic realities tests to determine whether a vertical joint employment relationship exists, but control over the employee and economic dependence are the main touchstones of the analysis. Contracts between the direct employer and the potential joint employer that disclaim any joint employer liability may not protect the potential joint employer as courts will look to the economic realities of the relationship regardless of a contract. Potential examples of vertical joint employers include hotel chains that contract out for their housekeeping, or an employee of a flooring subcontractor on a construction site who takes orders and instruction directly from the general contractor of the project. Due to the distinct fact sensitive and many-factored tests involved in different areas of the country, employers should consult experienced wage and hour counsel to determine if they are at risk for FLSA liability within a vertical joint employer relationship.

The trend of expansion of joint employer applicability continues in the realm of traditional labor law as well. July 2016's National Labor Relations Board decision in Miller & Anderson allows a union to organize a bargaining unit that contains both direct and joint employees without obtaining the employers' consent as previously required. That decision further expands joint employer applicability that was broadened last year in the Browning-Ferris NLRB decision. Prior to Browning-Ferris, employers needed to exercise direct control over another employer's workers to be considered a joint employer. Now, a company may be a joint employer if they only exercise indirect control, or may be a joint employer if they exercise no control at all but merely have the authority to do so.

Tyler J. Bohman is at Wessels Sherman's Chicago office. Mr. Bohman successfully defends Businesses in all areas of Employment and Labor law in both State and Federal courts. Mr. Bohman can be contacted at tybohman@wesselssherman.com or (312) 629-9300.

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