New Administration Equals New Rules for So-Called “Joint Employers”

After only six months since the President took office, the Trump Administration has had a large impact on redefining the “joint employer” relationship that was slowly expanded during the Obama Administration.

The end result is a potentially sweeping change over an area previously riddled with liability for business owners, franchise operators, and other so-called horizontal and vertical “joint employers.”

On June 6, 2017, U.S. Secretary of Labor Alexander Acosta announced the withdrawal of the Department of Labor’s 2015 and 2016 Wage & Hour Administrator Interpretations, which contained informal guidance relating to joint employment and independent contractors. A Labor Department press release on Secretary Acosta’s move notes that “removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).” It goes on to state that the “department will continue to fully and fairly enforce all laws within its jurisdiction including the… [FLSA] and the… [MSPA].” Though the responsibilities of employers may not change with the withdrawals, the definition of who is an employer under those acts could. How the Labor Department views employers and employment relationships also impacts liability assessments under other statutory schemes, including Michigan’s Elliott-Larsen Civil Rights Act.

Before 2015, the Labor Department held the position that the “joint employer doctrine” applied only in cases where a business had “direct control” over another entity’s workplace. However, in 2015 and 2016, the Labor Department’s Wage & Hour Division issued Administrator’s Interpretations No. 2015-1 and 2016-1 regarding the joint employer doctrine and the classification of employees as independent contractors. Collectively, these interpretations established new standards for determining joint employment relationships under the FLSA and the MSPA, resulting in broad definitions of employers and the employment relationship.

Specifically, the 2016 Interpretation stated that the “concept of joint employment, like employment generally, should be defined expansively under the FLSA and the MSPA.” The Labor Department also advised that joint employment could be more indirect, consisting of “horizontal” or “vertical” relationships. Horizontal employment occurs when an employee is employed by “two (or more) technically separate but related or overlapping employers” (as is common in franchise relationships), whereas “vertical joint employment situations” occur when the employee of the intermediary employer was also employed by another employer (such as in subcontractor or staffing agency situations). This was a drastic departure from the Labor Department’s prior position.

The practical effect of the 2015 and 2016 Interpretations was to create joint employment relationships where they did not necessarily exist before, and between businesses and employees who were not directly overseen by the business such as in the restaurant, hotel, franchise, and contracting industries. This resulted in additional liability under certain laws. For example, under the 2016 Interpretation, a national franchisor could be liable under the FLSA for the failure of a franchisee to pay its employees (employees that the franchisor did not interview, hire, supervise, or pay) for off-the-clock work such as waiting time or shop time.

Overall, Secretary Acosta’s decision to remove the 2015 and 2016 Interpretations signals a positive change in the Labor Department’s perspective concerning employers.  Presumably, the withdrawal of the prior Interpretations indicates that the government intends to revert to a narrower understanding of the employment relationship – a move in the right direction for businesses and franchisors. The final outcome for now, however, remains uncertain.

For more information about how the withdrawal of these Interpretations may impact your business or for general labor and employment advice, please contact Zausmer.