On January 13, 2020, the Department of Labor issued a new rule revising the test for determining “joint employer” status.  The final rule was published in the Federal Register on January 16, 2020, and becomes effective 60 days from that date.

To provide context, the DOL and the Courts long ago concluded that two separate companies can be considered joint employers if they both exercise a certain level of control over the same employee, and if the employee’s work for one company simultaneously benefits the other company.  This is a significant issue, because joint employers may both be held liable for violations of the Fair Labor Standards Act.

Historically, the DOL required a company to exercise direct control over an employee in order to be considered a joint employer.  In 2015 and 2016, however, the DOL released guidance indicating that a company could be considered a “joint employer” if a worker was economically dependent upon the business.  This represented a significant change, since the joint-employer test no longer hinged on the exercise of direct control.

The DOL’s new rule appears to represent a return to an emphasis on direct control.  To determine whether a company is a joint employer of a worker, the DOL will now examine whether the employer:

• Hires or fires the employee;
• Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
• Determines the employee’s rate and method of payment; and
• Maintains the employee’s employment records.

No single factor is dispositive, and the weight of each factor may vary based on the unique circumstances of each case.  However, the potential joint employer’s maintenance of the employee’s employment records alone will not lead to a finding of joint employer status.  Further, to be considered a joint employer, a company must actually exercise control over the employee.  Although the reserved right to exercise control may be relevant, the mere reservation of that right, if not actually utilized, is insufficient to establish a joint-employer relationship.

Some of the additional key takeaways from the new rule include:

• The use of the franchise model does not make a franchisor more likely to be the joint employer of its franchisee’s employees.
• One company requiring another company (such as a contractor or supplier) to comply with its legal obligations or to meet certain standards of conduct does not increase the likelihood of joint employer status.
• One company providing the other with a sample employee handbook or other forms does not make a finding of joint employer-status more likely.
• The risk of joint employer status to one company is not increased by allowing another company to operate a business on its premises.

In short, the new rule represents a significant change from the DOL’s position under the previous administration.  Although the new rule will probably not go into effect until mid-March, employers can breathe a little easier in light of the DOL’s clear shift away from the economic dependency test and back toward a direct control test.