{"id":10972,"date":"2026-06-16T20:03:06","date_gmt":"2026-06-16T20:03:06","guid":{"rendered":"https:\/\/usatrustedlawyers.com\/blog\/dol-proposes-new-joint-employer-rule-2\/"},"modified":"2026-06-16T20:03:06","modified_gmt":"2026-06-16T20:03:06","slug":"dol-proposes-new-joint-employer-rule-2","status":"publish","type":"post","link":"https:\/\/usatrustedlawyers.com\/blog\/dol-proposes-new-joint-employer-rule-2\/","title":{"rendered":"DOL Proposes New Joint-Employer Rule"},"content":{"rendered":"\n
\n

Summary<\/strong><\/p>\n

On April 1, 2019, the U.S. Department of Labor (\u201cDOL\u201d) proposed a new four-part test for determining whether a person or entity may be held liable as a \u201cjoint employer\u201d for violations of the wage-and-hour provisions of the federal Fair Labor Standards Act (\u201cFLSA\u201d).\u00a0 The proposed rule is the DOL\u2019s first meaningful proposed modification of the rule in over 60 years, and follows conflicting and at times controversial interpretations of the joint-employer standard issued by the courts and federal agencies over the past several years.
\u00a0<\/p>\n

Background<\/strong><\/p>\n

The FLSA defines an \u201cemployee\u201d as a person \u201cemployed by an employer\u201d and defines \u201cto employ\u201d as \u201cto suffer or permit to work.\u201d\u00a0 Under the FLSA, if two or more people or entities are \u201cjoint employers,\u201d they are jointly liable to employees for, among other things, wages and overtime pay. \u00a0The statute does not define a joint employer, and the determination of who constitutes a \u201cjoint employer\u201d in various employment-related contexts has been the source of considerable debate and confusion in recent years.<\/p>\n

National Labor Relations Board (\u201cNLRB\u201d).<\/em>\u00a0 In 2015, in Browning-Ferris Industries of California, Inc.<\/em>, the NLRB (during the Obama administration) abandoned its long-standing test that an entity must both possess and exercise direct control over employees\u2019 terms and conditions of employment in order to be considered a joint employer under the National Labor Relations Act and, thus, be required to bargain with a union. \u00a0The standard adopted by the NLRB in 2015 provided that a joint-employer relationship may be found merely based on the putative joint employer\u2019s right to control terms and conditions of employment, irrespective of whether such control is directly exercised or exercised at all.\u00a0 Our memorandum on the Browning-Ferris<\/em> decision is here.<\/p>\n

In December 2017, in Hy-Brand Industrial Contractors, Ltd. and Brandt Construction Co.<\/em>, the Trump administration\u2019s NLRB reversed the guidance issued by the Obama administration in Browning-Ferris<\/em> and reinstated the joint-employer standard that was in place prior to Browning-Ferris<\/em>.\u00a0 In February 2018, however, the NLRB vacated its decision in Hy-Brand<\/em>, finding that one of the NLRB\u2019s board members who voted with the 3-2 majority in Hy-Brand<\/em> should not have cast a vote in the decision because his former law firm had represented one of the unsuccessful litigants in Browning-Ferris<\/em>.<\/p>\n

In the fall of 2018, the NLRB proposed a revised joint-employer standard, which would find a joint-employment relationship only if a person or entity \u201cpossesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine.\u00a0 Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint-employer relationship.\u201d\u00a0 While the comment period for the proposed rule was pending, the District of Columbia Circuit Court of Appeals upheld the NLRB\u2019s Browning-Ferris<\/em> standard.\u00a0 In that decision, the court cautioned that \u201c[t]he policy expertise the [NLRB] brings to bear on applying the National Labor Relations Act to joint employers is bounded by the common-law\u2019s definition of joint employer.\u00a0 The Board\u2019s rulemaking, in other words, must color within the common-law lines identified by the judiciary.\u201d<\/p>\n

The comment period for the NLRB\u2019s proposed rule closed in February 2019, and the NLRB is currently reviewing the nearly 30,000 public comments that it received.\u00a0 The NLRB has stated that it expects to issue a final rule by the end of 2019.<\/p>\n

FLSA Civil Litigation<\/em>.\u00a0 The federal circuit courts have issued decisions with inconsistent tests for joint-employer status under the FLSA.\u00a0 The April 1, 2019 rule proposed by the DOL (discussed below) derives from a 1983 decision by the Ninth Circuit in Bonnette<\/em> v. California Health & Welfare Agency<\/em>.\u00a0 The Bonnette<\/em> test considers whether the alleged employer \u201c(1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.\u201d\u00a0 Courts within a number of circuit courts of appeal\u2014including the First, Third, Fifth and Seventh\u2014currently apply tests similar or identical to the Bonnette<\/em> test, while the Second Circuit has expressly rejected the Bonnette<\/em> test.\u00a0 In doing so, the Second Circuit found that the Bonnette<\/em> test \u201ccannot be reconciled\u201d with the language of the FLSA and has adopted a broader, six-part test that permits a court to find joint employment when \u201can entity has functional control over works even in the absence of [] formal control[s].\u201d\u00a0 The Fourth Circuit has similarly rejected the Bonnette<\/em> test, and adopted an entirely different test, rejecting the decisions of other courts as focusing too much on the \u201ceconomic realities\u201d between a worker and an alleged employer rather than the relationship between the two alleged joint employers.
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The DOL\u2019s Proposed Rule<\/strong><\/p>\n

The DOL has not issued significant rulemaking on the joint-employer standard under the FLSA since the 1950s.\u00a0 Under the Obama administration, the DOL in 2016 issued guidance calling for joint employment to be considered \u201cexpansively\u201d and \u201cas broad as possible.\u201d\u00a0 Shortly after Secretary Acosta arrived at the DOL, however, the DOL rescinded that guidance.<\/p>\n

On April 1, 2019, the DOL proposed a rule that would significantly narrow the joint-employer standard under the FLSA proposed by the DOL under the Obama administration.\u00a0 Among other things, the proposed rule clarifies that \u201c[o]nly actions taken with respect to the employee\u2019s terms and conditions of employment, rather than the theoretical ability to do so under a contract, are relevant to joint-employer status under the [FLSA].\u201d<\/p>\n

Accordingly, the DOL proposed a four-part test that would impose liability under the FLSA on a person or entity as a joint employer \u201conly if that person is acting directly or indirectly in the interest of the employer in relation to the employee.\u201d\u00a0 The four-part balancing test\u2014which modifies the Bonnette<\/em> test\u2019s first factor\u2014considers whether an alleged joint employer:\u00a0 1)\u00a0\u201chires or fires the employee\u201d; 2)\u00a0\u201csupervises and controls the employee\u2019s work schedule or conditions of employment\u201d; 3)\u00a0\u201cdetermines the employee\u2019s rate and method of payment\u201d; and 4)\u00a0\u201cmaintains the employee\u2019s employment records.\u201d<\/p>\n

According to the DOL, the answers to these questions will help to answer the question of \u201c[w]hether a potential joint employer, as a matter of economic reality, actually exercises sufficient control over an employee to qualify as a joint employer under the Act.\u201d\u00a0 The DOL clarified that whether an employee is economically dependent on the alleged joint employer is not relevant to the joint-employer analysis; thus, whether an employee \u201c[i]s in a specialty job or a job otherwise requiring special skill, initiative, judgment, or foresight,\u201d \u201c[h]as the opportunity for profit or loss based on his or her managerial skill,\u201d and \u201c[i]nvests in equipment or materials required for work or for the employment of helpers\u201d should not be considered.<\/p>\n

The proposed rule also explains that additional factors may be relevant to this joint-employer analysis, but only if they are indicia of whether the potential joint employer is exercising significant control over the terms and conditions of the employee\u2019s work, or otherwise acting directly or indirectly in the interest of the employer in relation to the employee.\u00a0 The proposed rule further explains that, in determining the economic reality of the potential joint employer\u2019s status under the FLSA, whether an employee is economically dependent on the potential joint employer is not relevant.\u00a0 As such, the DOL proposes to identify certain \u2018\u2018economic dependence\u2019\u2019 factors that are not relevant to the joint-employer analysis.\u00a0 Those factors would include, but would not be limited to, whether the employee:\u00a0 \u201c(1)\u00a0Is in a specialty job or a job otherwise requiring special skill, initiative, judgment, or foresight; (2)\u00a0Has the opportunity for profit or loss based on his or her managerial skill; and (3)\u00a0Invests in equipment or materials required for work or for the employment of helpers.\u201d<\/p>\n

The proposed rule provides nine examples and applies them to the proposed four-factor test.\u00a0 Three examples are of particular note:<\/p>\n

First<\/em>, where a large national company contracts with other businesses in its supply chain and requires those other businesses to comply with a \u201ccode of conduct\u201d that includes a minimum wage higher than the federal minimum wage, the DOL would not consider the large national company to be a joint employer of the other businesses\u2019 employees, because it is not \u201chiring, firing, maintaining records, or supervising or controlling work schedules or conditions of employment\u201d of the other businesses\u2019 workers and the other businesses \u201cretain[] control over how and how much to pay its employees.\u201d<\/p>\n

Second<\/em>, where a franchisor provides franchisees with sample employment applications, handbooks, and other documents, and the franchise agreement provides that the franchisee is \u201csolely responsible for all day-to-day operations, including hiring and firing of employees, setting the rate and method of pay, maintaining records, and supervising and controlling conditions of employment,\u201d the DOL would not consider the franchisor to be a joint employer of the franchisees\u2019 employees because the franchisor \u201cdoes not exercise direct or indirect control over [the franchisees\u2019] employees.\u201d<\/p>\n

Finally<\/em>, where a retail company owns a large store and contracts with a cell phone repair company to operate its business within the retail company\u2019s store and requires the cell phone repair company to provide specific shirts to its employees that look similar to the retail company\u2019s employees\u2019 shirts and mandates that the cell phone repair company institute a code of conduct for its employees stating that all employees must act professionally with customers, the DOL would not consider the retail company to be a joint employer of the cell phone repair company\u2019s employees because the requirement to wear specific shirts \u201cdoes not, on its own, demonstrate substantial control over the repair company\u2019s employees\u2019 terms and conditions of employment\u201d and \u201c[t]here is no indication that the retail company hires or fires the repair company\u2019s employees, controls any other terms and conditions of their employment, determines their rate and method of payment, or maintains their employment records.\u201d
\u00a0<\/p>\n

Implications<\/strong><\/p>\n

The public comment period for the proposed rule is scheduled to end on June 10, 2019.\u00a0 If adopted by the DOL, the proposed rule should provide welcome guidance to employers.\u00a0 As stated by the DOL, the rule is designed to \u201cpromote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.\u201d\u00a0 That being said, there is a debate over the authority of the DOL to issue binding legal authority.\u00a0 Critics may argue that the DOL is not permitted to re-define joint employment or the meaning of an employer or employee because, although the FLSA gives the DOL authority to craft regulations on matters such as overtime exemptions and child labor issues, nothing in the statute delegates authority to the DOL to adopt rules defining joint employment.<\/p>\n

Finally, we note that certain state laws may impose joint employer standards that are different (and broader) than the federal standard proposed by the DOL.<\/p>\n

This post is available in another form\u00a0as an S&C\u00a0client memo.<\/strong><\/em><\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

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