Defining Overtime Responsibility

Font Size:

The Department of Labor issued guidance defining “joint employers.”

Font Size:

John works twenty-five hours a week at each of two different farms that have an arrangement to share workers. Is he eligible for overtime? Jane works for a housekeeping service that provides housekeepers to a large hotel chain. If the housekeeping service does not pay her overtime, is the hotel responsible?

The Department of Labor’s Wage and Hour Division recently released an Administrator’s Interpretation seeking to help businesses answer these questions. It provided guidance on what constitutes “joint employment” under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

Both the FLSA and the MSPA share the same, broad definition of “employ:” “suffer or permit to work.” And under both statutes, an employee may have multiple employers at the same time—a situation known as joint employment.

In cases of joint employment, the worker receives overtime when the total number of hours worked for the employers reaches forty hours. Thus, if the farms are joint employers, John would receive ten hours of overtime pay for his fifty hours of work.

Moreover, joint “employers are jointly and severally liable for compliance.” This means that each employer is individually responsible for all costs of compliance, such as for paying overtime wages. Thus, if the hotel is a joint employer, it would be responsible for Jane’s overtime pay.

According to the Department of Labor, businesses are moving away from traditional staffing models of a single employer hiring employees. More businesses are outsourcing functions to third-party contractors, such that workers end up effectively having two or more employers.

The Administrator’s Interpretation identifies typical scenarios which count as joint employment, and the guidance discusses both horizontal and vertical joint employment.

Horizontal joint employment occurs when two employers separately employ the same employee, but the two employers are in fact closely related to each other. Horizontal joint employment turns on “the degree of association between the two potential joint employers” and the “degree to which they share control of the employee.”

In determining whether there is horizontal joint employment, the Administrator’s Interpretation includes many non-exclusive factors for consideration, such as ownership of possible joint employers, shared supervisory authority, shared clients, and intermingled operations.

For example, according to the guidance, when employee works at two legally separate locations of a restaurant chain, where the same individual owns both locations and where the managers coordinate the employee’s schedule, that employee is jointly employed by both restaurants. Conversely, an employee who just happens to work at two separate restaurants on different shifts is not jointly employed, even if the restaurants know that the employee has two jobs.

In general, formal arrangements to share employees also make the entities joint employers under the statute.

Vertical joint employment occurs when one employer is “economically dependent on another employer.” These situations typically arise when an employer has arranged for an intermediate employer to perform certain business functions. Thus, the employee’s work is often directly for the benefit of the potential joint employer.

The Administrator’s Interpretation identifies the first question as whether the potential joint employer actually employs the intermediary employer. If so, then all of the intermediary’s employees are employees of the potential joint employer. However, if the potential joint employer does not employ the intermediary, they might still both be joint employers. If the intermediate employer is “economically dependent” on the potential joint employer, then the two employers are joint employers.

The guidance gives seven factors for consideration in determining economic dependence, including the joint employer’s control of work performance, the length of the relationship, and the importance of the intermediary to the joint employer.

The Interpretation recognizes that courts have applied different factors in assessing vertical joint employment, but it asserts that the factors must look to economic dependence and not just to the other employer’s control over the intermediary’s employees. It held that the control requirement is “not consistent with the breadth of employment under the FLSA. Even absent control, if the intermediary employer is economically dependent, then the two parties are joint employers.

Some experts criticized this guidance as “significantly expanding the circumstances under which companies can be joint employers.” Management-side attorneys have expressed concern that the Department of Labor intends to go after the “bigger fish” between two employers. According to one management-side attorney, this could be especially concerning to smaller companies who otherwise would not have been covered entities under FLSA, as these smaller companies may now be responsible for compliance. The National Federation of Independent Business’s Senior Counsel described this as “a warning shot aimed just over the heads of businesses that hire other businesses.

The Wage and Hour Administrator, David Weil, defended the Interpretation as “clarify[ing] what we’re doing, so the regulated community can make their decisions with full knowledge about what we’re doing and why we’re doing it.”

Ultimately, this guidance likely will encourage companies who work in relationship with other employers to ensure each other’s compliance under FLSA and MSPA, lest they be held jointly and severally liable for the other entity’s violation.