In our previous post about the DOL’s new Administrator’s Interpretation (“AI”) on joint employment under the FLSA, we focused on “vertical” joint employment. That’s the variety of joint employment that exists when there is some sort of intermediary, like a staffing firm, PLA, or temp agency between the employee and the employer that is ultimately benefitting from the employee’s work. In this post, we will focus on the other flavor of joint employment discussed in the new AI: horizontal joint employment.
What is Horizontal Joint Employment and Why Does It Matter?
To understand horizontal joint employment, consider an employee – let’s call her Betty – who works two jobs at two different restaurants. In the mornings, she works at Eggceptional Cafe, a breakfast and lunch place. Then in the evening, she works at Le Bistro Employeur Commune, an upscale French eatery. Suppose Betty puts in 25 hours per week at each restaurant.
If the Cafe and the Bistro are separate employers, Betty doesn’t earn any overtime even though she is working a total of 50 hours per week between her two jobs. But what if both the Bistro and the Cafe are owned by the same guy, Tom? Suppose that Tom is a hands-on sort of owner who gets directly involved in the management of both restaurants. And suppose that employees of one operation, like Betty, frequently work at the other. In fact, Tom encourages it because it allows him to offer full-time employment to good employees and avoids scheduling conflicts with other jobs.
While we might want to know a few more facts about the interaction between the two businesses, it seems likely that the Bistro and the Cafe would be considered joint employers in this scenario. That’s potentially significant for both Betty and Tom. It means that instead of two separate 25-hour per week jobs, Betty has, at least for this purpose under the FLSA, one 50-hour job, for which she is entitled to 10 hours of overtime pay.
As with vertical joint employment, there is no single test or factor that will exclusively determine whether two employers will be regarded as joint employers under the FLSA. Different courts have applied different tests and, not to be outdone, the DOL endorses its own non-exclusive list of nine questions that are relevant to the analysis. These include:
- Who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners)?
- Do the potential joint employers have any overlapping officers, directors, executives, or managers?
- Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)?
- Are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for)?
- Does one potential joint employer supervise the work of the other?
- Do the potential joint employers share supervisory authority for the employee?
- Do the potential joint employers treat the employees as a pool of employees available to both of them?
- Do the potential joint employers share clients or customers? and
- Are there any agreements between the potential joint employers?
What Does This Mean For Employers?
While the new AI does not break any particularly new ground regarding horizontal joint employment, it does signal that the DOL intends to push the boundaries of the joint employer doctrine under the FLSA to make it “as broad as possible.” That means that businesses owned or controlled by the same parent corporations or groups of individuals need to consider the impact of possible joint employment, even if their various operations are separated into distinct legal entities. The issue isn’t limited to the for-profit sector. For example, a medical center or foundation affiliated with a university could share staff and resources with the unviersity in ways that might raise questions of whether they are joint employers.
So what can employers do about this? In our example above, if Tom wanted to ensure that his restaurants are not joint employers for any purpose, he would need to take steps to ensure that they are each separately managed, with their own payroll, separate schedules, etc. If that isn’t feasible for Tom, there are also some relatively simple steps that Tom could take to address any overtime issues under the FLSA. For example, he could adopt a policy of not employing the same individuals at more than one restaurant in any given workweek. Alternatively, Tom could manage schedules to ensure that no employee works more than 40 hours total between the two restaurants. Or he could simply track and pay overtime as needed. The key, as with many wage and hour issues, is spotting the potential problem, and then doing something about it before you are audited by the DOL or served with a class action lawsuit.