Targeting Employers President Ronald Reagan famously noted that the “most terrifying words in the English language are: I’m from the government, and I’m here to help.”

Well, the Department of Labor (DOL) announced on 1/20/2015 that they were here to help clarify when a joint employment relationship exist under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSA).

Specifically, the DOL issued its administrator’s interpretation (Administrator’s Interpretation No. 2016-1), which essentially concluded that the scope of joint employment is broader than many employers believe it to be under the FLSA and MSA; the DOL enforces both statutes.

What this likely means for companies is that they should be prepared for expanded liability for statutory violations associated with third party vendors, such as staffing companies or contract workers.

The stated reason for issuing the administrator’s interpretation is because the DOL,

… regularly encounters situations where more than one business is involved in the work being performed and where workers may have two or more employers. More and more, businesses are varying organizational and staffing models by, for instance, sharing employees or using third-party management companies, independent contractors, staffing agencies, or labor providers.

The interpretation further concluded that “as a result, the traditional employment relationship of one employer employing one employee is less prevalent … The growing variety and number of business models and labor arrangements have made joint employment more common.

The Take Away

The full administrator’s interpretation should be thoroughly discussed with your company’s legal counsel. But two agenda items that should be part of that discussion are as follows:

First, the DOL went out of its way to emphasize that the “appropriate” test to determine joint employment under the FLSA and MSA is much broader than what is used under the National Labor Relations Act (NLRA) and similar employment statutes. In that regard, the NLRA (enforced by the National Labor Relations Board) focuses on the extent of control or possible control one business has over employees of another.

In contrast, the DOL’s position is that courts must focus on “economic dependence,” i.e., whether someone employed by one business is economically dependent on another company involved in the work, similar to a traditional employer/employee relationship. This focus, in turn, must, according to the DOL, examine seven factors collectively referred to as the “economic realities factors.”

Second, the DOL’s administrator’s interpretation clearly signals that companies should be prepared for federal regulators seeking to hold more businesses accountable for people whose employment conditions they control to some degree, but do not claim as employees. Prime examples of such relationships will involve staffing firms or employee leasing companies.

Bolstering this conclusion, Melanie Trottman of the Wall Street Journal reported that business leaders (among those she interviewed was Beth Milito, senior executive counsel of the National Federation of Independent Business) believe the DOL’s administrator’s interpretation:

… is just another threat to the business model of many small firms in our country, because larger companies are probably really going to question whether they take the risk of contracting with a smaller company” or whether they bring the work in-house instead … [and] it would hurt large and small businesses’ flexibility to outsource functions that aren’t part of their main mission such as information technology or cleaning …

See Ms. Trottman’s article, Labor Department to Suggest Designating More Businesses ‘Joint Employers.’ For more information about this article, joint employment, and what your company can do to limit its risks associated with a joint employment determination, contact employment attorney Jason Shinn. He regularly works with staffing firms and employee leasing companies.