With Open Arms: DOL To Embrace Many New Companies As "Joint Employers," Arguing All Will Be Subject To Full Liability Under The FLSA

By: Paul A. Wilhelm

Despite fun and inviting cartoons atop its news release early Wednesday morning, the Department of Labor ("DOL") Wage and Hour Division ("WHD") is making life neither fun nor inviting for companies who share or lease workers, or use workers from staffing companies.  

On January 20, 2016, the WHD issued Administrator's Interpretation No. 2016-1 ("AI"). The AI provides notice of the WHD's enforcement mindset with respect to joint employment under the Fair Labor Standard Act ("FLSA") and the Migrant and Seasonal Agricultural Worker Protection Act ("MSPA"). As noted in the AI, the WHD intends to turn up the heat on companies by using a joint employment analysis that will result in holding as many entities as possible fully liable for wage-and-hour and other violations. The AI will result in finding a joint employer relationship between many supplier and user employers. The AI explains the DOL will focus particular attention on the construction, agricultural, janitorial, warehouse and logistics, staffing, and hospitality industries (the "Targeted Industries").

The AI states:

  1. The DOL reads the FLSA's definition of "employ" as broadly as possible. The WHD's interpretation will result in more liability for multiple entities where companies use workers employed or supplied by third parties. The DOL is pledging to assert and find an employment relationship (and joint employment) exists despite one of the alleged joint employers having little or no control or supervision over the workforce.
  2. The WHD classifies joint employers into two categories. "Horizontal" joint employment occurs when an employee is employed by two or more technically separate but related or overlapping employers. For example, the WHD will likely find this sort of joint employment where two separate restaurants share wait staffs. "Vertical" joint employment occurs when an employee of one company is "economically dependent on" another company, "who typically contracts with" the first company. For example, the WHD will likely find this sort of joint employment exists for the involved companies where a staffing agency, subcontractor, labor provider, or "other intermediary employer," supplies employees to a user employer. This embraces or is intended to embrace nearly all sharing, staffing or subcontractor relationships.

A sample of what the AI means for companies subject to suit under the FLSA, especially those in the Targeted Industries includes:

  1. The DOL asserts each joint employer can be held "individually" responsible for the entire amount of wages due and for other penalties and damages.
  2. Splitting hours of common employees among companies to avoid overtime can result in massive overtime liability for all involved.
  3. The DOL asserts one company's bankruptcy or inability to pay the amount owed does not relieve the other company of its obligation to pay the full amount of the unpaid wages and overtime.
  4. DOL investigators will now (more than ever) attempt to uncover evidence of joint employment, under the DOL's expansive position and theories, to try to impose liability on the maximum number of entities, especially in the Targeted Industries. 
  5. One company's agreements with other entities, which may address risks via contractual protections such as release, indemnity and hold harmless, may not fully protect the company.

No matter your industry, but especially for those in the Targeted Industries, we recommend you consult with counsel to review your current and future workforce structures, including the involvement of other entities, along with any subcontractor, staffing or sharing agreements (whether for management or non-management workers). Due to this AI, and other activity from the DOL and other arms of the federal government such as the IRS and NLRB, it is now more important than ever to engage counsel for every DOL investigation.

The issue of wage-and-hour liability (of one or more companies) is even more acute because of other imminent DOL action. The DOL will reportedly issue a Final Rule on its revised white-collar regulations this summer, with minimal time thereafter for compliance. Click on these links to access our previous e-alerts on the proposed regulations: Who Burned Our 'Regs? - Overtime Proposal Turns Up Heat On Employers Again, More Than Doubling Salary Test and Overtime Comment Deadline Upon Us; DOL Refuses to Extend.

If you have any questions about the AI, please contact Paul A. Wilhelm at (313) 309-4269 | eat0@eau0eav0eaw0, or another member of Clark Hill's Labor and Employment Practice Group.