On January 12, 2020, the DOL announced a final rule to update and clarify the DOL's standard for determining joint employer status under the FLSA. The rule finalizes, with some amendment, a proposed rule published in April 2019 (see Legal Update, DOL Announces a Proposed Rule to Update Employer Responsibilities in Joint Employer Arrangements). The final rule becomes effective on March 16, 2020. (29 C.F.R. §§ 791.1 to 791.3.)

The rule examines how to determine joint employer status in two different scenarios. The most common joint employer scenario under the FLSA is when an employer suffers, permits, or otherwise employs an employee to work, and another person simultaneously benefits from that work. The person benefitting from the work is a joint employer "only if that person is acting directly or indirectly in the interest of the employer in relation to the employee." The final rule applies a four-factor test when making this determination, and considers whether the potential joint employer:

Under this test, derived from Bonnette v. California Health & Welfare Agency, none of the four factors is dispositive and varying circumstances dictate the weight given to each factor (704 F.2d 1465, 1470 (9th Cir. 1983)).

The final rule indicates that other factors may be considered, but only to the extent relevant to determining whether the employer exercised substantial control over the terms or conditions of employment (the second factor). The rule clarifies that to establish joint employment, the employer must exercise actual control, not just have the ability or right to exercise that control. The final rule also modifies the proposed rule by adding language to clarify that the potential joint employer's supervision and control must be exercised "to a substantial degree" to constitute a joint employment relationship.

The other joint employer scenario occurs when multiple employers suffer, permit, or otherwise employ the employee to work separate sets of hours in the same workweek. When this occurs, the multiple employers are considered joint employers if they are sufficiently associated regarding the employment of the employee, in which case they must aggregate the hours worked for each employer to determine compliance. The DOL's analysis under this scenario is not substantially changed by the final rule.

The final rule includes numerous examples illustrating situations that do and do not constitute a joint employment relationship. For more information on the DOL's FLSA joint employer standard, see the agency's fact sheet and frequently asked questions on the topic.

The DOL's changes provide increased clarity for determining joint employer status, potentially creating more uniformity among court decisions and reducing litigation. As revised, the rule appears to allow a joint employment determination in fewer situations and therefore narrow potential joint employer liability. However, joint employer status determinations remain complicated and fact-specific, and it remains unclear how courts will apply the DOL final rule to actual facts. For example, the DOL provides no guidance as to how the various factors are to be weighed. Nonetheless, this final rule is the first meaningful revision to the DOL's joint employer regulation in over 60 years, and employers will likely appreciate the clarified standard.

UPDATE

On September 21, 2021, WHD published a Final Rule delaying until October 5, 2021, the effective date of the rule titled "Rescission of Joint Employer Status Under the Fair Labor Standards Act Rule" published in the Federal Register on July 30, 2021.