Client Alerts

Regulatory Spring: Rulemaking by the Wage & Hour Division - July 1, 2019

07/01/2019

Last week, Seyfarth submitted comments regarding the DOL’s proposal to update the federal regulations that set the standard for determining whether a business can be held liable as a joint employer under the FLSA. You can see a copy of the comments by clicking here.

In our comments, we applaud the DOL’s move to update the joint employer rule. The current rule is outdated and murky, and it has left far too many businesses to grapple with uncertainty over whether and when they might be held liable for the employment practices of the third-parties with which they contract. In addition to complicating risk assessment, the current rule has proven prone to protracted and costly litigation, as well as conflicting interpretations across federal judicial circuits. By supplanting the old rule with a four-factor test that focuses on exercised control, rather than theoretical or unexercised power, the DOL’s proposed rule is a much needed step in the right direction.

Yet as noted in our comment, the rule could be even clearer and more predictable for the regulated community. To that end, we suggest in our comments various changes that would help to reduce the potential for conflicting interpretations and litigation pertaining to certain aspects of the proposed rule. Likewise, we recommend the addition of further examples illustrating what might prove joint employer status and what should not.

For instance, business practices that should be irrelevant to the joint employer determination include when another business’s employees:

  • Use the email systems of, or share common email addresses with, the benefitted entity (i.e., the entity contracting with the worker’s direct employer);
  • Have access to the benefitted entity’s electronic portals and platforms containing guidelines, forms, systems, tools, etc.;
  • Use materials, tools, systems, and other conveyances bearing the benefitted entity’s brand or logo; sign in or out on a timekeeping system or a log provided or maintained by the benefitted entity to facilitate compliance with applicable laws, regulations, or contractual requirements or expectations;
  • Have freedom to use the benefitted entity’s common facilities, e.g., cafeterias, break areas, and nursing mother rooms; or
  • Participate in meetings conducted by the benefitted entity pertaining to matters such as health, safety, and legal compliance.

Similarly, we explain in our comment, the final rule should clarify that the joint employment analysis is not be impacted by:

  • A benefitted entity merely having access to or possession of data pertaining to a direct employer’s employees;
  • A benefitted entity’s placement of its personnel for periods of time in management, executive, or board-level roles of the direct employer, as long as such placement and associated involvement does not establish actual exercise of control or otherwise effect the analysis of the Final Rule’s other factors;
  • A direct employer’s use of policies and handbooks provided or recommended by the benefitted entity as fulfilling best practice models;
  • The collaboration among benefitted entities and direct employers in initiatives to drive revenue-producing and operations enhancing advantages for the whole; e.g.: (a) when a franchisor participates in job fairs or job postings and other recruiting initiatives with franchisees; (b) when benefitted entities collaborate with direct employers to develop and implement systems and processes helpful to business operations; and (c) when committees comprising representatives of benefitted entities’ and direct employers’ collaborate to develop policies and similar matters; 
  • The engagement of similar or the same lawyers, law firms, accountants, accounting firms, consultants, consulting firms, or any other professional or non-professional services providers engaged commonly by both entities;
  • Engaging in co-location practices beyond the “store within a store” arrangement cited in the Proposed Rule, such as subleasing, back-of-house, and computer coding teams;
  • The benefitted entity’s processing of payroll or administration / provision of other functions and services pursuant to arms’ length deals negotiated at reasonable market prices; or
  • The beliefs or communications of the direct employer’s employees that do not demonstrate the actual exercise of control by the benefitted entity (such as a worker’s representation that he or she “works for” the benefitted entity).

Of course, this is merely a snippet of the issues that we cover in our full comments. If you have any questions about our comments, please do not hesitate to contact us at regulatoryspring@seyfarth.com. We anticipate that the DOL will publish its final rule in early 2020. We would be happy to discuss these issues with you in the meantime.