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No Fooling – DOL Seeks to Limit Joint Employer Liability with New 4-Factor Test


No Fooling – DOL Seeks to Limit Joint Employer Liability with New 4-Factor Test

The U.S. Department of Labor is pressing ahead with its efforts to revamp the Fair Labor Standards Act regulations (we recently posted here regarding proposed changes to the Regular Rate of pay calculation regulations). On April 1, 2019, the DOL proposed a new four-factor test that would clarify when two employers are jointly responsible for minimum wage and overtime violations. Under this test, the DOL would consider whether the potential joint employer:

  • exercises power to hire or fire the employee;
  • supervises and controls the employee’s work schedules or conditions of employment;
  • determines the employee’s rate and method of payment; and
  • maintains the employee’s employment records.

The proposed rule would provide a substantive update to regulations issued under the Fair Labor Standards Act for the first time in over 60 years. The DOL explained: “The proposed changes are designed to reduce uncertainty over joint employer status and clarify for workers who is responsible for their employment protections, promote greater uniformity among court decisions, reduce litigation, and encourage innovation in the economy.”

Employee rights groups likely hoped the announcement was an April Fools’ joke, as the proposed rule would result in many fewer findings of joint employer status than the Obama Administration’s 2016 guidance on the subject. Employers have been waiting for this announcement since June 2017, when the DOL rescinded its prior guidance without further instruction. The proposed test focuses on exercise of control, and not economic dependence. This proposed rule comes as particularly good news to franchisors, franchisees, contractors, and staffing companies, which have been plagued by uncertainty in this area. 

This proposed rule follows on the tail of a similar proposed rule on joint employer status issued by the National Labor Relations Board in September 2018. Both proposed rules are viewed as employer-friendly clarifications to an increasingly murky area of law. While the proposed rule strikes a positive note for employers, it is not time to make changes yet. Parties on both sides will have 60 days to comment on the proposed regulation after it is published in the Federal Register.