The Fair Labor Standards Act (“FLSA”) was enacted in 1938 to protect workers from substandard wages and oppressive working hours. It has two principal features. It requires employers to pay employees a federal minimum wage and to pay overtime of one and a half times the employees’ regular rate of pay for hours worked in excess of forty hours a week. Since the obligation is placed on the employer to comply with the wage and hour requirement, it is important to understand who is considered an employer under the Act. FLSA defines an employer to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” But what if an employee is technically employed by one employer but provides services for another entity? Which is responsible for complying with the FLSA’s wage and hour requirements? The answer may be both.
Two or more entities may constitute “joint employers” for purposes of the FLSA. Whether one entity is a joint employer with another depends of a number of factors and considerations. A joint employment exists when the employment by one employer is not completely dissociated from the employment by the other. The joint employment treats a worker’s employment by joint employers as one employment for purposes of determining whether the wage and hour requirements of the Act have been satisfied. So for example, if an employee works for joint employers, the hours worked for each during the week are combined to determine if the employee is entitled to overtime. In addition, joint employers are responsible both individually and jointly for complying with the requirements of the Act. Since joint employers are severally and jointly liable to the employee, if the employee is unable to collect what he is owed from one joint employer, for example due to insolvency, he may be able to collect what he is owed from the other.
Many courts consider a four part test in determining if an entity is a joint employer for purposes of the Act. They include whether the alleged joint employer had the power to hire and fire the employee; supervised and controlled the employee’s work schedule or condition of employment; determined the rate and method of payment; and maintained employment records. Other courts, including the Second Circuit, have a more expansive view, reasoning that Congress intended for the FLSA to have a broad application, noting that the relevant provision of the FLSA, defines “employ” as including “to suffer or permit to work” which is “‘the broadest definition [of ’employ’] that has ever been included in any one act.” Other courts have supplemented the four factors by applying a multitude other factors when analyzing whether a joint employment arrangement exists as an economic reality.
The United States Department of Labor (DOL) recently proposed a new Rule that narrows what is meant by a joint employer under the FLSA. The rule reins in the broad interpretation that some courts have applied and limits the factors that can be considered in determining joint employer status.
Under the DOL rule, if an employee works for an employer and another person simultaneously benefits from that work, the other person is the employee’s joint employer only if that person is acting directly or indirectly in the interest of the employer in relation to the employee. To make that determination simpler, the DOL essentially adopted the four factor test with one significant modification – – only actions taken with respect to the employee’s terms and conditions of employment, rather than the theoretical ability to do so, are relevant in determining joint employer status. The DOL’s four factors are whether the purported joint employer: (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment record. Other factors may only be considered under very limited circumstances.
Several states, including New York, have sued the DOL challenging the Rule asserting that its promulgation violated the Administrative Procedures Act and alleging, among other things, that the Rule will result in lower wages and a decrease in compliance with worker protection laws, thereby harming workers as well as reducing the States’ tax revenue. As of the date of this writing, the action is still pending.
 State law may provide for a greater minimum wage.