Labor Department Turns up Heat on ‘Joint Employers’

In an “administrator’s interpretation” issued yesterday, the Department of Labor’s Wage and Hour Division sought to clarify its approach to existing regulations governing joint employment situations—such as when businesses outsource functions to other businesses or source employees through temp or staffing agencies. Written by the division’s director David Weil, the interpretation indicates that the department considers these regulations to apply to both “vertical” joint employment (when one company hires another that hires an employee in turn) and “horizontal” arrangements “where the employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.”

The other newsworthy element of this statement, as the New York Times’ Noam Scheiber explains, is that the Labor Department is adopting a more expansive definition of joint employment than the National Labor Relations Board:

In labor organizing … the main question is whether the parent company exercises control, directly or indirectly, over employees at another company like a franchise or contractor. … By contrast, the Labor Department relies on a substantially broader doctrine to determine joint employment when it enforces the laws that grant minimum wage and overtime protections, having to do with the underlying “economic realities” of the situation. Under that doctrine, an upstream company can be considered a joint employer of another company’s workers even if it doesn’t exert direct or indirect control over them.

Weil’s statement does not constitute a formal regulation and thus has no legal weight, but labor law experts tell Scheiber that it may well come up in litigation anyway:

Michael C. Harper, an expert on employment and labor law at Boston University School of Law, pointed out that such guidance could influence actions by employers, often under the influence of management lawyers urging clients to take pre-emptive action. Conversely, plaintiffs’ lawyers may find the interpretation helpful when litigating cases. “You have a document you can present in court,” said Benjamin I. Sachs, a professor of labor and employment law at Harvard Law School. “You can say the administrator of the wage and hour division sees it this way.”

At JD Supra Business Advisor, Michael Lotito and Tammy McCutcheon unpack what the new guidance might mean for employers. It “specifically targets the construction, agricultural, janitorial, warehouse and logistics, staffing and hospitality industries,” they note, and “includes examples from the health care, restaurant and security industries,” so “employers in these industries should be especially concerned.” They also interpret what it means about the Wage and Hour Division’s thinking in general:

Both the distinction between vertical and horizontal joint employment, and the WHD’s application of the economic realities test, represent a departure from current agency standards. … This AI reflects the agency’s longstanding priority to loosen joint employment standards. … Weil has claimed that the “impact of supply-chain relationships, branding, franchising, third-party management, and subcontracting all have important implications for patterns of compliance in an industry and for strategies that WHD can take to affect employer behavior.” It seems clear by this AI that the WHD will closely scrutinize these types of employment relationships to see whether joint employment exists.

Predictably, pro-business advocacy groups are not thrilled with the new interpretation, but the staffing industry doesn’t appear to be sweating it, Huffington Post labor reporter Dave Jamieson reports:

[T]he American Staffing Association, a trade group representing staffing firms, says the guidance isn’t anything to worry about. Stephen Dwyer, the group’s general counsel, told The Huffington Post in an email that the courts had already established legal precedent for joint employment. Therefore, Dwyer said, the guidance “should have little practical effect for the staffing industry and should not be of concern to staffing clients.”

The International Franchise Association, on the other hand, expressed dismay over the guidance to the Washington Post’s Lydia DePillis:

“This is just another example of regulatory fiat that raises even more questions for employers,” said senior vice president Matt Haller. “The administration should consider going through formal rulemaking instead of just issuing a ‘guidance’ without even an outreach to targeted industries who may be impacted.”

Weil says that this criticism is overblown, just like those levied after the labor department issued guidance on misclassification. “When things calmed down, people saw that one, we’re very serious about this,” he says. “And two, what we’re asking is very clear and straightforward. We’re not playing an elaborate gotcha game.”