In a significant win for small business owners, the U.S. Department of Labor (DOL) announced its long-awaited “joint employer” rule, which narrows the definition of joint employer under the Fair Labor Standards Act (FLSA), the federal wage and hour law, and provides much-needed clarity to small businesses.
The new rule, which takes effect March 16, limits the situations under which employers, such as a contractor and a subcontractor, can be considered to jointly employ a group of workers under the FLSA, thereby making both entities responsible for wage and hour violations such as unpaid overtime.
The rule announced on January 12, 2020, is the first significant update to the joint-employer rule in more than 60 years and creates a new four-factor balancing test to determine whether businesses share liability for FLSA wage and hour violations. To determine whether a second company is a joint employer of a worker, DOL will examine whether the putative joint 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 in determining joint-employer status, and the weight of each of the factors may vary based on the facts of each case.
NFIB filed comments in support of DOL’s proposal to simplify the test for determining joint-employer status. NFIB argued that a less flexible and broader joint-employer standard would discourage large businesses, concerned about incurring additional wage and hour liability, from contracting with small companies.
It is expected that the National Labor Relations Board will soon release a final rule setting forth a similar standard for joint-employer status under the National Labor Relations Act.
Employers with questions can contact the NFIB Small Business Legal Center at 800-NFIB-NOW. Employers can also download a copy of the NFIB Guide to Wage and Hour Law, which provides additional information on FLSA rules including DOL’s new overtime rule.
This alert is for informational purposes only and does not constitute legal advice.