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Labor Rule on Joint Employer Status Finalized

Final rule brings clarity for BSCs and franchise businesses

January 17, 2020

The U.S. Department of Labor announced on January 12 a final rule to revise and update the regulations interpreting joint employer status under the Fair Labor Standards Act (FLSA). This issue affects franchise businesses, including cleaning franchisors, and firms that outsource services such as cleaning and maintenance.

Under the FLSA, an employee may have, in addition to his or her employer, one or more joint employers—additional individuals or entities that are jointly and severally liable with the employer for the employee’s wages. The FLSA requires covered employers to pay their employees at least the federal minimum wage for every hour worked and overtime for every hour worked over 40 in a workweek.

 The final rule, effective March 16, 2020, provides a four-factor balancing test for determining FLSA joint employer status in situations where an employee performs work for one employer that simultaneously benefits another entity or individual. The balancing test examines whether the potential 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
  • Maintains the employee’s employment records.

The department said in the final version of the rule that a company’s right or ability to exercise any of the four factors may be relevant, but that such ability alone doesn’t determine joint employer status unless there’s some actual exercise of control. In the final rule, the department also:

  • Clarifies an employee’s “economic dependence” on a potential joint employer doesn’t determine whether it’s a joint employer under the FLSA
  • Specifies an employer’s franchisor, brand and supply, or similar business model and certain contractual agreements or business practices don’t make joint employer status under the FLSA more or less likely, and
  • Provides several examples applying the department’s guidance for determining FLSA joint employer status in a variety of different situations, including those involving cleaning companies.

The rule, first proposed last spring, narrows the situations in which multiple businesses share liability for paying workers their wages, a key element of the Trump White House’s efforts to roll back the Obama administration’s more expansive definition of “joint employment.”

“These revisions provide ISSA members and especially our building service contractors with greater clarity regarding what practices may result in joint employer status,” said John Nothdurft, ISSA Director of Government Affairs. “By clarifying the interpretation of FLSA joint employer status, this rule helps our members comply with the FLSA and reduce litigation.”

The final rule is not likely to impact businesses in California as employers are more broadly defined. According to Crystal Page, California Labor Department spokesman, “The definition of an employer in California is wide enough to reach any person, company, or agency that directly or indirectly employs or exercises control over an employee’s pay, hours or working conditions.”

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