• Are You A "Joint Employer"?
  • March 21, 2016 | Authors: Katherine A. Hren; Philip L. Reznik; Richard S. Rosenberg
  • Law Firm: Ballard Rosenberg Golper & Savitt LLP - Encino Office
  • Labor law watchdog agencies have been grappling with a difficult question: how best to protect workers employed through labor sharing arrangements such as employee leasing, subcontracting and third party staffing agencies. One way is by labeling the arrangement as "joint employment". As joint employers, both entities are legally responsible for any labor violations affecting these workers. This issue of Compliance Matters is devoted to reviewing how businesses often unwittingly become joint employers, taking on significant financial exposure.

    The U.S. Department of Labor's wage-hour division enforces federal minimum wage and overtime laws. Last October, its enforcement chief publicly stated that the agency needs to protect these workers from the vagaries of when more than one business may be involved in an individual worker's employment. In an official agency blog, he described the effort this way: "We're identifying the contracting stream, or supply chains, so those at the top of the chain will evaluate the compliance practices of those below them and consider whether it's worth their own good name, and possibly their own bottom line, to utilize the services of subcontractors or suppliers who skirt the law." In January, he issued formal guidance setting out the criteria for a finding of joint employment.

    Who Is A Joint Employer? A joint employer finding is hinged upon whether the employee is "economically dependent" on the client who engages their employer. Under this test, employees might be found to be jointly employed even where the alleged joint employer exercises little or no control or supervision over these employees.

    A joint employer finding focuses on two business paradigms-"horizontal joint employment" and "vertical joint employment."

    "Horizontal joint employment" often exists where an employee simultaneously works for two or more companies during the same workweek. The focus is upon the "connectedness" of the companies. A key issue for the horizontal joint employer finding is actual or potential coordination between the employers which permit the two entities to assert control over the total number of hours worked. In doing so, the agency will evaluate:
    • whether one of the entities owns part or all of the other, or whether they have any common owners;
    • whether the companies have any overlapping officers, directors, executives, or managers;
    • whether the companies share control over hiring, firing, payroll, advertising, overhead costs or operations;
    • whether the operations of the two entities are intermingled, e.g., there is one administrative operation for both employers, or the same person schedules and pays employees, regardless of which entity receives the employee's services;
    • whether one entity is vested with the right to supervise the work of the other, or share supervisory authority over the employee;
    • whether the entities treat the employees as a pool of available workers to both entities; and
    • whether the two entities share clients or customers.
    In a "vertical joint employment" scenario, the work in question is really for the benefit of the company engaging the labor provider. Examples are where a garment manufacturer subcontracts a specific function in its manufacturing process, a hospital uses nurses from a staffing agency or where warehouse workers are employed by subcontractors who contract with the warehouse operator.

    As a threshold matter, in a vertical joint employer review, the agency will first examine whether the subcontractors in question pass muster as true independent contractors. If they do, then the agency will evaluate the following factors:
    • Which entity actually controls the work to be performed by the employees in question?
    • Which entity controls the working conditions of the employees in question? 
    • The permanency and duration of the relationship
    • The nature of the work (unskilled work that requires little or no training is an indicator of joint employment)
    • The degree to which the work is integral to the customer's business;
    • Whether the work is performed at the customer entity's premises; and
    • Whether the customer entity performs administrative functions pertaining to the workers in question.
    What Employers Should Do. With a plethora of new work arrangements, government agencies and plaintiff's attorneys are attempting to adapt to new work paradigms. Joint employment is a new tool which widens the liability net for the benefit of these workers. If you suspect that your business might be a joint employer, there are practical steps you may be able to take to reduce your financial exposure. This process should be undertaken under the guidance of the company's labor counsel and human resources team to insure that that all facets of the issue are considered and that the discussions are covered by the attorney-client privilege.