Joint Employer Status Under the Fair Labor Standards Act

Federal RegisterJan 16, 2020

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DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Part 791

RIN 1235-AA26

Joint Employer Status Under the Fair Labor Standards Act

AGENCY:

Wage and Hour Division, Department of Labor.

ACTION:

Final rule.

SUMMARY:

The U.S. Department of Labor (the Department) is updating and revising the Department's interpretation of joint employer status under the Fair Labor Standards Act (FLSA or Act) in order to promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.

DATES:

This final rule is effective March 16, 2020.

FOR FURTHER INFORMATION CONTACT:

Amy DeBisschop, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division (WHD), U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-free number). Copies of this final rule may be obtained in alternative formats (Large Print, Braille, Audio Tape or Disc), upon request, by calling (202) 693-0675 (this is not a toll-free number). TTY/TDD callers may dial toll-free 1-877-889-5627 to obtain information or request materials in alternative formats.

Questions of interpretation and/or enforcement of the agency's regulations may be directed to the nearest WHD district office. Locate the nearest office by calling WHD's toll-free help line at (866) 4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time zone, or log onto WHD's website for a nationwide listing of WHD district and area offices at

http://www.dol.gov/whd/america2.htm.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

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.

To be liable for paying minimum wage or overtime, a person or entity must be an “employer,” which the FLSA defines in section 3(d) to “include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee.”

See

29 U.S.C. 206(a), 207(a).

29 U.S.C. 203(d).

As the Department has recognized since the FLSA's enactment, an employee can have two or more employers who are jointly and severally liable for the wages due the employee (

i.e.,

joint employers). In 1958, the Department published an interpretive regulation, codified in 29 CFR part 791, which explained that joint employer status depends on whether multiple persons are “not completely disassociated” or “acting entirely independently of each other” with respect to the employee's employment.

The regulation provided three situations where two or more employers are generally considered joint employers: Where there is an arrangement between them to share the employee's services, as, for example, to interchange employees; where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or where they are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.

Until this final rule, the Department had not meaningfully revised part 791 since its promulgation over 60 years ago.

See

23 FR 5905 (Aug. 5, 1958) and 29 CFR 791.2(a).

See

29 CFR 791.2(b).

The Department is concerned that part 791 does not provide adequate guidance for the most common joint employer scenario under the Act—where an employer suffers, permits, or otherwise employs an employee to work, and another person simultaneously benefits from that work. Part 791's focus on the association or relationship between potential joint employers is not necessarily helpful in determining whether the other person benefitting from the employee's work is the employee's employer too, especially considering the text of section 3(d) and Supreme Court and circuit court precedent determining joint employer status based on the degree of control exercised by the potential joint employer over the employee.

Accordingly, in April, the Department published a Notice of Proposed Rulemaking (NPRM) detailing this concern, explaining how section 3(d) provides the textual basis for determining joint employer status under the Act, proposing a four-factor balancing test for determining joint employer status in the scenario where another person benefits from an employee's work, and proposing additional guidance regarding how to apply the test.

In addition, the NPRM recognized that part 791's focus on the association between the potential joint employers is useful for determining joint employer status in a second scenario—where multiple employers suffer, permit, or otherwise employ an employee to work separate sets of hours in the same workweek and the issue is whether those separate sets of hours should be aggregated in the workweek. The Department proposed that the multiple employers are joint employers in this scenario if they are sufficiently associated with respect to the employment of the employee. Finally, the NPRM provided illustrative examples describing how the Department's proposal would apply in a number of factual scenarios involving multiple employers.

See

84 FR 14043 (Apr. 9, 2019).

Having received and reviewed the comments to its proposal, the Department now adopts as a final rule the analyses set forth in the NPRM largely as proposed. In the joint employer scenario where another person is benefitting from the employee's work, the Department is adopting a four-factor balancing test derived from

Bonnette

California Health & Welfare Agency

to assess whether the other person: (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 records. No single factor is dispositive in determining joint employer status, and the appropriate weight to give each factor will vary depending on the circumstances. However, satisfaction of the maintenance of employment records factor alone does not demonstrate joint employer status.

704 F.2d 1465 (9th Cir. 1983).

The Department believes that this test is consistent with the “any person acting directly or indirectly in the interest of an employer in relation to an employee” language in the Act's definition of “employer.” That language alone provides the textual basis for determining joint employer status under the Act. Although section 3(e) (defining “employee”)

and section 3(g) (defining “employ” as including “to suffer or

permit to work”)

broadly define who is an employee under the Act, only section 3(d) addresses whether a worker who is an employee under the Act has another employer for his or her work. Moreover, multiple circuit courts apply balancing tests that, similar to the Department's test, assess the potential joint employer's control over the employee.

29 U.S.C. 203(e)(1).

29 U.S.C. 203(g).

The Department's final rule provides additional guidance on how to apply this test. For example, to be a joint employer under the Act, the other person must actually exercise—directly or indirectly—one or more of the four control factors. The other person's ability, power, or reserved right to act in relation to the employee may be relevant for determining joint employer status, but such ability, power, or right alone does not demonstrate joint employer status without some actual exercise of control. The Department had proposed that the reserved right to act be irrelevant for determining joint employer status, but having reviewed and considered the comments received, it now recognizes that the reserved right to act can play some role in determining joint employer status, though there still must be some actual exercise of control. The Department's final rule also provides, in response to comments received, guidance on the meaning of “employment records” for purposes of applying the fourth factor and on what constitutes indirect acts of control for purposes of applying the factors generally.

Application of the four factors should determine joint employer status in most cases. Nonetheless, the Department recognizes, consistent with longstanding precedent, that additional factors may be relevant for determining joint employer status. Accordingly, the final rule provides that additional factors may be considered, but only if they are indicia of whether the potential joint employer exercises significant control over the terms and conditions of the employee's work. In addition, the final rule provides that whether the employee is economically dependent on the potential joint employer is not relevant for determining the potential joint employer's liability under the Act. Economic dependence is relevant when applying section 3(g) and determining whether a worker is an employee under the Act; however, determining whether a worker who is an employee under the Act has a joint employer for his or her work is a different analysis that is based on section 3(d). Thus, factors that assess the employee's economic dependence are not relevant to determine whether the worker has a joint employer. Examples of such factors include: (1) Whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight; (2) whether the employee has the opportunity for profit or loss based on his or her managerial skill; (3) whether the employee invests in equipment or materials required for work or the employment of helpers; and (4) the number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services.

The Department's proposal identified certain business models (such as a franchise model), certain business practices (such as allowing the operation of a store on one's premises), and certain contractual agreements (such as requiring a party in a contract to institute sexual harassment policies) as not making joint employer status more or less likely under the Act. The Department received many comments in response to its proposal, and the final rule identifies even more business models, business practices, and contractual agreements as not making joint employer status more or less likely under the Act. This will allow parties to make business decisions and enter into business relationships with more certainty and clarity regarding what actions will result in joint liability under the Act.

In the other joint employer scenario under the Act—where multiple employers suffer, permit, or otherwise employ the employee to work separate sets of hours in the same workweek—the multiple employers are joint employers if they are sufficiently associated with respect to the employment of the employee. This approach is consistent with the Department's focus on the association between the potential joint employers. If the multiple employers are joint employers, they must aggregate the hours worked for each for purposes of determining compliance with the Act.

Finally, the final rule provides even more illustrative examples applying the Department's analyses to factual situations than did the proposal—again, to provide more certainty and clarity regarding who is and is not a joint employer under the Act.

The Department's estimates of the economic impacts of this final rule are discussed in sections VI and VII below. The Department estimates that costs in the form of regulatory familiarization with this final rule will range from $324.2 million to $416.7 million. Additionally, this final rule may reduce the number of persons who are joint employers in one scenario and as a result, employees will have the legal right to collect wages due under the Act from fewer employers. For these reasons, the Department acknowledges that there may be transfers from employees to employers. However, the Department lacks the data needed to calculate the potential amount or frequency of these transfers. This final rule is considered to be an Executive Order 13771 deregulatory action and is economically significant for the purposes of Executive Order 12866. Qualitative details of the cost savings, benefits, and other economic impacts are discussed below.

II. Background

A. The FLSA

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 FLSA defines the term “employee” in section 3(e)(1) to mean “any individual employed by an employer,”

and defines the term “employ” in section 3(g) to include “to suffer or permit to work.”

“Employer” is defined in section 3(d) to “include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee.”

See

29 U.S.C. 206(a), 207(a).

29 U.S.C. 203(e)(1).

29 U.S.C. 203(g).

29 U.S.C. 203(d).

B. Regulatory and Judicial History

In July 1939, a year after the FLSA's enactment, WHD issued Interpretative Bulletin No. 13 addressing, among other topics, whether two or more companies could be jointly and severally liable for a single employee's hours worked under the Act.

The Bulletin acknowledged the possibility of joint employer liability and provided an example where two companies arranged “to employ a common watchman” who had “the duty of watching the property of both companies concurrently for a specified number of hours each night.”

The Bulletin concluded that the companies “are not each required to pay the minimum rate required under the statute for all hours worked by the watchman . . . but . . . should be

considered as a joint employer for purposes of the [A]ct.”

See

Interpretative Bulletin No. 13, “Hours Worked: Determination of Hours for Which Employees are Entitled to Compensation Under the Fair Labor Standards Act of 1938,” ¶¶ 16-17. In October 1939 and October 1940, the Department revised other portions of the Bulletin not pertinent here.

Id.

¶ 16.

Id.

The Bulletin provided a second example of an employee who works 40 hours for company A and 15 hours for company B during the same workweek.

The Bulletin explained that if A and B are “acting entirely independently of each other with respect to the employment of the particular employee,” they are not joint employers and may “disregard all work performed by the employee for the other company” in determining their obligations to the employee under the Act for that workweek.

On the other hand, if “the employment by A is not completely disassociated from the employment by B,” they are joint employers and must consider the hours worked for both as a whole to determine their obligations to the employee under the Act for that workweek.

Relying on section 3(d) of the FLSA, the Bulletin concluded by saying that, “at least in the following situations, an employer will be considered as acting in the interest of another employer in relation to an employee: If the employers make an arrangement for the interchange of employees or if one company controls, is controlled by, or is under common control with, directly or indirectly, the other company.”

See id.

¶ 17.

Id.

In 1958, the Department published a regulation, codified in 29 CFR part 791, which expounded on Interpretative Bulletin No. 13.

Section 791.2(a) reiterated that joint employer status depends on whether multiple persons are “not completely disassociated” or “acting entirely independently of each other” with respect to the employee's employment.

Section 791.2(b) explained, “Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek,” the employers are generally considered joint employers in situations such as:

See

23 FR 5905 (Aug. 5, 1958).

29 CFR 791.2(a).

(1) Where there is an arrangement between the employers to share the employee's services, as, for example, to interchange employees; or

(2) Where one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee; or

(3) Where the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.

29 CFR 791.2(b) (footnotes omitted).

In 1961, the Department amended a footnote in the regulation to clarify that a joint employer is also jointly liable for overtime pay.

Since this 1961 update, the Department has not published any other updates to part 791 until this final rule.

See

26 FR 7730, 7732 (Aug. 18, 1961).

In 1973, the Supreme Court decided

Falk

Brennan,

a joint employer case.

Falk

did not cite or rely on part 791, but instead used section 3(d) to determine whether an apartment management company was a joint employer of the employees of the apartment buildings that it managed.

The Court held that, because the management company exercised “substantial control [over] the terms and conditions of the [employees'] work,” the management company was an employer under section 3(d), and could therefore be jointly liable with the building owners for any wages due to the employees under the FLSA.

See

414 U.S. 190.

See id.

at 195.

Id.

In 1983, the Ninth Circuit issued a seminal joint employer decision,

Bonnette

California Health & Welfare Agency.

Bonnette,

seniors and individuals with disabilities receiving state welfare assistance (the “recipients”) employed home care workers as part of a state welfare program.

Taking an approach similar to

Falk,

the court addressed whether California and several of its counties (the “counties”) were joint employers of the workers under section 3(d).

In determining whether the counties were jointly liable for the home care workers under section 3(d), the court found “four factors [to be] relevant”: “whether the alleged [joint] employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.”

The court noted that these four factors “are not etched in stone and will not be blindly applied” and that the determination of joint employer status depends on the circumstances of the whole activity.

Applying the four factors, the court concluded that the counties “exercised considerable control” and “had complete economic control” over “the nature and structure of the employment relationship” between the recipients and home care workers, and were therefore “employers” under section 3(d), jointly and severally liable with the recipients to the home care workers.

See

704 F.2d 1465,

abrogated on other grounds, Garcia

San Antonio Metro. Transit Auth.,

469 U.S. 528 (1985). Although the Ninth Circuit later adopted a thirteen-factor test in

Torres-Lopez

May,

111 F.3d 633, 639-41 (9th Cir. 1997), many courts have treated

Bonnette

as the baseline for their own joint employer tests.

See

704 F.2d at 1467-68.

See id.

at 1469-70.

Id.

at 1470.

Id.

In 2014, the Department issued Administrator's Interpretation (Home Care AI) No. 2014-2, concerning joint employer status in the context of home care workers.

Consistent with § 791.2, the Home Care AI described a joint employer as an additional employer who is “not completely disassociated” from the other employer(s) with respect to a common employee, and cited the breadth of the definitions of “employer” and “employ” in sections 3(d) and (g).

The Home Care AI opined that “the focus of the joint employment regulation is the degree to which the two possible joint employers share control with respect to the employee and the degree to which the employee is economically dependent on the purported joint employers.”

The Home Care AI opined that “a set of [joint employer] factors that addresses only control is not consistent with the breadth of [joint] employment under the FLSA” because section 3(g)'s “suffer or permit” language governs FLSA joint employer status.

The Home Care AI applied the four

Bonnette

factors as part of a larger multi-factor analysis that provided specific guidance about joint employer status in the home care industry.

available at http://www.dol.gov/whd/opinion/adminIntrprtn/FLSA/2014/FLSAAI2014_2.pdf.

Id.

at 2, 2 n.2.

Id.

at 3 n.3.

Id.

at 3 n.4.

See id.

at 9-14.

In 2016, the Department issued Administrator's Interpretation No. 2016-1 (Joint Employer AI) concerning joint employer status under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), which the Department intended to be “harmonious” and “read

in conjunction with” the Home Care AI's discussion of joint employer status.

The Joint Employer AI, although also citing the definitions in sections 3(d) and (e), described section 3(g)'s “suffer or permit” language as determining the scope of joint employer status.

The Joint Employer AI opined that “joint employment, like employment generally, `should be defined expansively.' ”

It further opined that “joint employment under the FLSA and MSPA [is] notably broader than the common law . . . which look[s] to the amount of control that an employer exercises over an employee.”

The Joint Employer AI concluded that, because “the expansive definition of `employ' ” in both the FLSA and MSPA “rejected the common law control standard,” “the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible.”

The Department rescinded the Joint Employer AI effective June 7, 2017.

U.S. Dep't of Labor, Wage & Hour Div., WHD Administrator's Interpretation No. 2016-1, “Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act” (Jan. 20, 2016).

See id.

Id.

(quoting

Torres-Lopez,

111 F.3d at 639).

Id.

See

News Release, U.S. Dep't of Labor, U.S. Secretary of Labor Withdraws Joint Employment, Independent Contractor Informal Guidance (June 7, 2017),

available at https://www.dol.gov/newsroom/releases/opa/opa20170607.

C. The Department's Proposal

On April 9, 2019, the Department proposed revisions to part 791 to update and clarify its interpretation of joint employer status under the FLSA.

See

84 FR 14043-61.

For the joint employer scenario where an employee has an employer who suffers, permits, or otherwise employs an employee to work and another person simultaneously benefits from that work, the Department proposed that the other person is the employee's joint employer under the Act only if that person is acting directly or indirectly in the interest of the employer in relation to the employee. The Department proposed to adopt a four-factor balancing test derived (with one modification) from

Bonnette

California Health & Welfare Agency

assessing whether the potential joint employer:

• Hires or fires the employee;

• Supervises and controls the employee's work schedule or conditions of employment;

• Determines the employee's rate and method of payment; and

• Maintains the employee's employment records.

The Department proposed to modify the first

Bonnette

factor so that a person's ability, power, or reserved contractual right to act with respect to the employee's terms and conditions of employment would not be relevant to that person's joint employer status under the Act.

The Department also proposed that additional factors may be relevant to this joint employer analysis, but only if they are indicia of whether the potential joint employer is:

• Exercising significant control over the terms and conditions of the employee's work; or

• Otherwise acting directly or indirectly in the interest of the employer in relation to the employee.

The Department further proposed that, in determining the economic reality of the potential joint employer's status under the Act, whether an employee is economically dependent on the potential joint employer is not relevant. The Department identified certain “economic dependence” factors that are not relevant to the joint employer analysis, including, but not limited to, whether the employee:

• Is in a specialty job or a job otherwise requiring special skill, initiative, judgment, or foresight;

• Has the opportunity for profit or loss based on his or her managerial skill; and

• Invests in equipment or materials required for work or for the employment of helpers.

The Department's proposal noted that a joint employer may be any “person” as defined by section 3(a) of the Act, which includes “any organized group of persons.” It also proposed that a person's business model (such as a franchise model), certain business practices (such as allowing an employer to operate a store on the person's premises or participating in an association health or retirement plan), and certain business agreements (such as requiring an employer in a business contract to institute sexual harassment policies), do not make joint employer status more or less likely under the Act.

In the other joint employer scenario under the Act—where multiple employers suffer, permit, or otherwise employ the employee to work separate sets of hours in the same workweek—the Department proposed only non-substantive revisions. Believing that part 791's current focus on the association between the potential joint employers is useful for determining joint employer status in this scenario, the Department proposed that the multiple employers are joint employers in this scenario if they are sufficiently associated with respect to the employment of the employee. The Department noted that, if they are joint employers, they must aggregate the hours worked for each for purposes of determining compliance with the Act.

Finally, the Department's proposal included several other provisions. First, it reiterated that a person who is a joint employer is jointly and severally liable with the employer and any other joint employers for all wages due to the employee under the Act. Second, it provided a number of illustrative examples that applied the Department's proposed joint employer rule. Third, it contained a severability provision.

III. Need for Rulemaking

The primary purpose of this final rule is to offer guidance explaining how to determine joint employer status where an employer suffers, permits, or otherwise employs an employee to work, and another person simultaneously benefits from that work.

In the proposed rule, the Department sought to revise and clarify the standard for joint employer status in order to give the public more meaningful, detailed, and uniform guidance of who is a joint employer under the Act. The Department noted that circuit courts currently use a variety of multi-factor tests to determine joint employer status, which have resulted in inconsistent treatment of similar worker situations, uncertainty for organizations, and increased compliance and litigation costs. To promote greater uniformity in court decisions and predictability for organizations and employees, the Department is adopting with modifications the four-factor test that it proposed for determining joint employer status.

As noted in the Proposed Rule, part 791 is silent on whether a business model can make joint employer status more or less likely, and in this final rule, the Department explains its longstanding position that certain business models—such as the franchise model—do not themselves indicate joint employer status under the FLSA. In addition, the Department presents illustrative examples of the degree of agreements and association between employers that will result in joint and several liability. These updates are intended to assist organizations that may be hesitant to enter into beneficial relationships or engage in worker-friendly business practices for fear of being held liable for the wages of

employees over whom they have insignificant control.

IV. Final Regulatory Revisions

A. Introductory Statement to Part 791

As explained in the NPRM's preamble, the Department proposed to make “non-substantive revisions” to the introductory statement provided in § 791.1. 84 FR 14047. In relevant part, the proposed statement reiterated the Department's intent for part 791 to “serve as `a practical guide to employers and employees as to how [WHD] will seek to apply [the FLSA],' ”

and continued to advise that the Department will use the interpretations provided in part 791 to guide its enforcement of the Act unless it “concludes upon reexamination that they are incorrect or is otherwise directed by an authoritative judicial decision.”

Id.

84 FR 14058 (quoting

Skidmore

Swift & Co.,

323 U.S. 134, 138 (1944)).

The Department received no comments specifically addressing its proposed revisions to the introductory statement, but several commenters opined on matters germane to its substance. Senator Patty Murray and several worker advocacy groups, such as National Employment Lawyers Association (NELA) and the Low Wage Worker Legal Network, asserted that part 791 constitutes an interpretive rule that is not binding on courts. Asserting that the proposed rule's analysis contradicts much of the existing judicial precedent addressing FLSA joint employer status, these commenters stated that the proposal would be entitled to little judicial deference and of limited value for employers seeking to rely upon it.

See, e.g.,

NELA (“Why, for example, would any responsible employer in North Carolina follow the Department's . . . proposed test knowing that the Fourth Circuit endorsed an entirely different test in [

Salinas

Commercial Interiors, Inc.,

848 F.3d 125 (4th Cir. 2017)]?”); Low Wage Worker Legal Network (predicting “a deluge of new litigation to understand whether, and to what extent, the law has shifted”). Many commenters representing employees asserted that the Department's proposed rule would be unlawful specifically because, in their opinion, it sets forth an analysis that ignores longstanding Supreme Court and circuit court precedent.

See, e.g.,

Coalition of State Attorneys General (Coalition of State AGs); Farmworker Justice; Legal Aid Justice Center.

By contrast, commenters representing employers praised the proposed rule in part for its potential to restore uniformity to the varied analyses currently applied by courts in different jurisdictions to determine FLSA joint employer status. For example, HR Policy Association asserted that ambiguity in the existing regulation has resulted in a “maze of tests” that produce different judicial outcomes in cases with similar facts, creating “substantial uncertainty for employers with national operations.”

See also

International Bancshares Corporation. Describing the same problem, the U.S. Chamber of Commerce asserted that the proposed rule would return “much-needed uniformity to the Act's enforcement scheme, which Congress intended when it passed the legislation.” As discussed below in greater detail, commenters representing employers overwhelmingly endorsed the proposed rule as a clear and appropriate interpretation of the FLSA.

The Department appreciates commenter feedback addressing the purpose and underlying legal authority of this rulemaking. As explained in greater detail below, the Department believes that the analysis adopted in this final rule is faithful to both the FLSA and to binding Supreme Court precedent. Although the analysis clearly differs, to varying degrees, from the myriad FLSA joint employer tests applied by the federal circuit courts of appeals, the Department has previously promulgated interpretive guidance regarding joint employer liability that overtly conflicts with the approach taken in a particular federal circuit.

And given the divergent views of joint employment in the circuit courts, it would not be possible to provide detailed guidance that is consistent with all of them. Moreover, the Department notes that some of the tests used by the circuit courts (including the standard articulated by the Fourth Circuit in

Salinas

) are based in part on the ambiguous guidance provided in the Department's existing part 791 regulation. And more importantly, some circuit courts use joint employer tests that are expressly grounded in the principle that the FLSA should be read broadly, and thus, any exemptions construed narrowly. For instance, in articulating a joint employer test that is broader than the

Bonnette

factors, the Fourth Circuit explained that “because the [Fair Labor Standards] Act is remedial and humanitarian in purpose, it should be broadly interpreted and applied to effectuate its goals.”

The Ninth Circuit likewise explained that “the concept of joint employment should be defined expansively under the FLSA . . . in order to effectuate the broad remedial purposes of the Act” when adopting a test that gives weight to a wide range of factors.

For instance, the Department's withdrawn Joint Employer AI expressly recognized its conflict with the First and Third Circuits' approach of “apply[ing] factors that address only or primarily the potential joint employer's control.” U.S. Dep't of Labor, Wage & Hour Div., WHD Administrator's Interpretation No. 2016-1, “Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act” (Jan. 20, 2016);

See also

Low Wage Worker Legal Network (“The language of the [Act] does not support [the Department's proposed] interpretation. The word `joint' does not appear in § 203(d). However, the word `includes' in . . . § 203(d) would suggest that there are other types of employers under the FLSA than those that meet the statutory definition of § 203(d).”). AFL-CIO stated that, rather than defining the term “employer” itself, section 3(d) “simply makes clear that the term employer includes the employer's agents.”

See also

Southern Migrant Legal Services (“Section 3(d) was not drafted to provide a comprehensive definition of `employer,' but to simply make clear it included many corporate officers and managers, as well as the business entities for which they worked.”). SEIU described how, as a general matter, an employer's individual agents are not liable for the employer's actions, but that section 3(d) “was enacted largely to ameliorate the adverse impact of the . . . rule proscribing individual liability in the absence of grounds for piercing the corporate veil” (citing

Donovan

Agnew,

712 F.2d 1509, 1513 (1st Cir. 1983);

Dole

Elliott Travel & Tours, Inc.,

942 F.2d 962, 965 (6th Cir. 1991)).

See also

NELP (“[M]ost of the cases interpreting 203(d) consider instances where a `person'—natural or corporate—is sufficiently involved in a corporation's day-to-day functions to be an `employer' under the FLSA”). In sum, according to Southern Migrant Legal Services, “[t]he point of including Section 3(d) in the Act was `to prevent employers from shielding themselves from responsibility for the acts of their agents' ” (quoting

Donovan

Agnew,

712 F.2d at 1513).

Numerous comments also took issue with the Department's proposal to exclude sections 3(e) and 3(g) from any joint employer analysis. The Coalition of State AGs stated that “[t]he three definitions are interrelated, and courts have considered them together in analyzing joint-employment status” (citing,

e.g., Baystate Alt. Staffing, Inc.

Herman,

163 F.3d 668, 675 (1st Cir. 1998)). Greater Boston Legal Services stated that “[c]ourts around the country have . . . looked at the intertwined nature of the FLSA definitions for employ (Section 3(e)(1)), employee (Section 3(g)) and employer (Section 3(d)) to guide joint-employer analysis” (citing cases). Comments also discussed the breadth of the definitions.

See, e.g.,

Coalition of State AGs (“Thus, the FLSA's far-reaching definitions for the terms `employer,' `employee,' and `employ' must be read broadly in light of the statute's remedial purpose.”) (citing cases); AFL-CIO (asserting that the Department's proposal fails to acknowledge “the Supreme Court's repeated admonitions concerning the breadth of the definition of employment under the FLSA.”).

Comments further stated that the history and purpose of section 3(g)'s definition of “employ” as including “to suffer or permit to work,” given the particular meaning of that language and similar language in child labor statutes around the time of the FLSA's enactment, was to ensure that a business that engaged another to provide it with workers was also an employer of the workers under the Act.

See, e.g.,

NELP (“[I]n fact, the central purpose of [`suffer or permit'] and its established understanding when inserted by Congress into the FLSA in 1938 was to do just that: to hold companies accountable for child labor (and minimum wage and overtime) violations even where the workers were directly hired, supervised, and paid by an independent contractor of that company.”); Farmworker Justice (“[W]here businesses took advantage of child labor and substandard labor practices but sought to evade responsibility by claiming an intermediary was the sole employer, the suffer or permit to work standard was applied to hold them accountable as `employers.' ”); Public Justice Center (“Thus, when the suffer or permit to work language was included in the FLSA, it allowed for joint responsibility of contractors and the businesses for whom they contracted to supply workers. That well-settled meaning was incorporated into the FLSA.”). In addition, comments described the Department's proposed legal analysis excluding section 3(g) from determining joint employer status as “unique,”

see

Public Justice Center, “irrational[ ]” and “utterly inconsistent with the statute and the case law,”

see

Farmworker Justice, a “novel and unsupportable proposition,”

see

NELP, and “fundamentally unsound” (Greater Boston Legal Services, pg. 5).

See also

SEIU (“The idea that the § 203(g) definition of `employ' is irrelevant to a determination of the existence of a joint employer relationship is truly remarkable, contradicted as it is by virtually every reported appellate opinion that concerns joint employment under the FLSA.”).

Finally, some commenters viewed the Department as misstating Supreme Court decisions to defend its reliance on section 3(d) and exclusion of sections 3(e) and (g) when determining joint employer status. For example, Senator Patty Murray described the proposal's discussion of

Falk

Brennan

as “conclusory” and “obscur[ing] the Court's actual statement” in that decision. According to Senator Murray, “[t]he Court [in

Falk

] did not state, as the Department proposes to, that joint employment was to be decided with the exclusion of the FLSA's definition of `employ'; in fact, the Court used the definition of `employee' at 3(e)(1) that the Department proposes to exclude.” Senator Murray concluded that the NPRM's “claim that the Court [in

Falk

] somehow limited joint employer analysis to 3(d) by being silent on 3(g) is without merit.” The Coalition of State AGs asserted that the Department's proposed legal analysis “presents misleading characterizations of several Supreme Court cases,” particularly

Rutherford Food.

NELP stated that the Department's proposed interpretation of section 3(g) conflicts with controlling Supreme Court authority, particularly

Rutherford Food.

And Farmworker Justice stated that the NPRM's description of

Rutherford Food

was “fatally flawed,” “misstate[d] the facts and holding” of that decision, and was “wrong when it states that the . . . Court's invocation of the `suffer or permit' definition in section 3(g) was merely to determine whether the [workers] were independent contractors rather than employees.”

Having considered the comments, the Department adopts as proposed the interpretation that section 3(d) is the statutory basis for determining joint employer status under the Act.

On the one hand, section 3(e) defines an “employee” to mean “any individual employed by an employer.” 29 U.S.C 203(e)(1). This definition, by its plain terms, focuses on the individual's status as an employee or not under the Act. However, in the first joint employer scenario, the individual's status as an employee is unquestioned. In the first scenario, the individual is an employee of one employer whose work for that employer happens to simultaneously benefit another person, and the issue is whether that other person is also the employee's employer. Moreover, section 3(e)—not section 3(d)—incorporates the Act's definition (in section 3(g)) of “employ” as including “to suffer or permit to work.”

Compare

29 U.S.C. 203(e)(1) (defining “employee” as, with certain exceptions, “any individual

employed

by an employer)

with

29 U.S.C. 203(d) (using neither “employ” nor “employed”) (emphasis added). As the Supreme Court has ruled, the Act's definition of “employ” was a rejection of the common law standard for determining who is an employee under the Act in favor of a broader scope of coverage.

See Nationwide Mut. Ins. Co.

Darden,

503 U.S. 318, 326 (1992) (“[T]he FLSA . . . defines the verb `employ' expansively to mean `suffer or permit to work.' This . . . definition, whose striking breadth we have previously noted, stretches the meaning of `employee' to cover some parties who might not qualify as such under a strict application of traditional agency law principles.”) (citations omitted);

Walling

Portland Terminal Co.,

330 U.S. 148, 150-51 (1947) (“But in determining who are `employees' under the Act, common law employee categories or employer-employee classifications under other statutes are not of controlling significance. This Act contains its own definitions, comprehensive enough to require its application to many persons and working relationships, which prior to this Act, were not deemed to fall within an employer-employee category.”) (citations omitted). Thus, sections 3(e) and 3(g) determine whether an individual worker is an employee under the Act.

On the other hand, section 3(d) defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. 203(d). This language, by its plain terms, contemplates an employment relationship between an employer and an employee, as well as another person who may be an employer too—which exactly fits the first joint employer scenario under the Act. In that scenario, there is unquestionably an employee employed by an employer, and the issue is whether another person is an employer as well. This language from section 3(d) makes sense only if there is an employer and employee with an existing employment relationship and the issue is whether another person is an employer. Indeed, among the Act's definitions, only this language from section 3(d) contemplates the possibility of a person in addition to the employer who is also an employer and therefore jointly liable for the employee's hours worked.

The courts' decisions in

Falk

and

Bonnette

support focusing on section 3(d) as determining joint employer status. In

Falk,

it was “clear that the maintenance workers [were] employees of the building owners.” 414 U.S. at 195. The issue thus was whether another person (D & F) was “also an `employer' of the maintenance workers under s[ection] 3(d) of the Act, which defines `employer' as `any person acting directly or indirectly in the interest of an employer in relation to an employee.' ”

Id.

(quoting 29 U.S.C. 203(d)). The Court did not mention section 3(g), and although it referenced section 3(e), it squarely focused on section 3(d) and whether the other person was an “employer” as determining the inquiry.

Id.

The Court concluded: “In view of the expansiveness of the Act's definition of `employer' and the extent of D & F's managerial responsibilities at each of the buildings, which gave it substantial control of the terms and conditions of the work of these employees, we hold that D & F is, under the statutory definition, an `employer' of the maintenance workers.”

Id.

Similarly,

Bonnette

framed the issue as whether additional persons were jointly responsible to the employees under the Act, identified and discussed the definition of “employer” under section 3(d) as determining the additional persons' joint responsibility, did not mention sections 3(e) or 3(g), and “conclude[d] that, under the FLSA's liberal definition of `employer,' the [additional persons] were employers of the [employees],”

i.e.,

“joint employers.” 704 F.2d at 1469-1470.

Rutherford Food

is not contrary to this statutory interpretation separating sections 3(e) and (g) from section 3(d). In

Rutherford Food,

the focus was on whether the workers were employees under the FLSA or independent contractors: The Department argued that the workers were “within the classification of employees, as that term is used in the Act,” the district court disagreed and ruled “that they were independent contractors,” and the court of appeals reversed because “the test for determining who was an employee under the Act was not the common law test of control,” and the underlying economic realities showed that the workers were employees. 331 U.S. at 726-27. The Court cited in a footnote the Act's definitions of “employer,” “employee,” and “employ,”

see id.

at 728 n.6, but in determining the workers' status as employees or independent contractors, it relied only on section

3(g): “The definition of `employ' is broad. It evidently derives from the child labor statutes and it should be noted that this definition applies to the child labor provisions of this Act.”

Id.

at 728. Looking at “the circumstances of the whole activity,” the Court concluded: “While profits to the [workers] depended upon the efficiency of their work, it was more like piecework than an enterprise that actually depended for success upon the initiative, judgment or foresight of the typical independent contractor. Upon the whole, we must conclude that these [workers] were employees of the slaughtering plant under the Fair Labor Standards Act.”

Id.

at 730.

See also

National Association of Convenience Stores. In other words, as the National Association of Professional Employer Organizations explained, these comments seek application of the standard that the National Labor Relations Board (NLRB) applied under the NLRA “for decades prior to [its

Browning-Ferris

decision], and [which it] presently is proposing to adopt . . . in a notice of proposed rulemaking.” A few other comments that generally supported the proposed rule nonetheless referenced a direct and immediate control standard or requested that the FLSA standard be harmonized with the NLRA standard or all federal law standards.

See, e.g.,

National Association of Truckstop Operators; National Association of Home Builders (NAHB); National Federation of Independent Business. Finally, International Franchise Association, in addition to supporting the proposed rule, recommended adopting, “at least in connection with franchising,” “the common law `instrumentality' test” asking whether the potential joint employer has control over the specific behavior or condition of employment relevant in the given case.

The Department rejects these requests because they have no legal basis. As an initial matter, the NLRA defines “employer” differently from the FLSA

and does not define “employ” at all.

In addition, the NLRB independently enforces the NLRA; the Department has no role in enforcing the NLRA. And although the Court in

Rutherford Food

suggested (over seventy years ago) that NLRA decisions may be “persuasive” when deciding similar FLSA matters, 331 U.S. at 723-24, the NLRA decision cited by the Court was abrogated by Congressional amendments to the NLRA.

See Darden,

503 U.S. at 324-25 (discussing Congressional amendments to the NLRA as a result of

NLRB

Hearst Publications, Inc.,

322 U.S. 111 (1944)). Congress did not similarly amend the FLSA as a result of

Rutherford Food.

Finally, as discussed above, Congress rejected the common law standard when enacting the FLSA.

See Darden,

503 U.S. at 326;

Portland Terminal,

330 U.S. at 150-51. For all of the foregoing reasons, the Department has not made any changes in the final rule in response to these comments.

Compare

29 U.S.C. 152(2)

with

29 U.S.C. 203(d).

Compare Browning-Ferris Indus. of Cal., Inc.

Nat'l Labor Relations Bd.,

911 F.3d 1195, 1206 (D.C. Cir. 2018) (“[T]he National Labor Relations Act's test for joint-employer status is determined by the common law of agency[.]”)

with Tony & Susan Alamo Found.

Sec'y of Labor,

471 U.S. 290, 301 (1985) (“The test of employment under the [Fair Labor Standards] Act is one of `economic reality[.]' ”).

This final rule provides the standards for determining joint employer status under the FLSA. The Department will continue to use the standards in its MSPA joint employer regulation, 29 CFR 500.20(h)(5), to determine joint employer status under MSPA, and will continue to use the standards in its FMLA joint employer regulations, 29 CFR 825.106, to determine joint employer status under the FMLA.

E. Determining Joint Employer Status in the First Scenario (One Set of Hours Worked)

Current part 791 determines joint employer status by asking whether two or more persons are or are not “completely disassociated” with respect to the employment of the employee.”

The proposed rule explained that this standard is not helpful for determining joint employer status in one of the joint employer scenarios under the Act—where an employer suffers, permits, or otherwise employs an employee to work one set of hours in a workweek, and that work simultaneously benefits another person (for example, where the employer is a subcontractor or staffing agency, and the other person is a general contractor or staffing agency client).

See

84 FR 14046 47. In this scenario, the employer and the other person are almost never “completely disassociated.”

Id.

As noted in the NPRM, the “not completely disassociated” standard may therefore suggest that these situations always result in joint employer status, contrary to long-standing policy.

Id.

Thus, the Department proposed to replace the language of “not completely disassociated” as the standard in such scenarios with a four-factor balancing test derived (with modification) from

Bonnette,

704 F.2d 1465.

See

84 FR 14047 48. The four proposed factors considered whether the potential joint employer hires or fires the employee; supervises and controls the employee's work schedules or conditions of employment; determines the employee's rate and method of payment; and maintains the employee's employment records.

Id.

The NPRM also clarified that the factors were intended to focus on the economic realities of the potential joint employer's exercise of control over the terms and conditions of the employee's work. 84 FR 14048.

29 CFR 791.2(a) (2019).

The Department received robust commentary from a range of

stakeholders concerning how to determine joint employer status in the first scenario (one set of hours worked). Below, the Department first addresses comments received regarding the four-factor balancing test, discussing each factor and the final adopted language for the test itself. The Department then discusses the application of the four-factor test and limits on the consideration of additional factors. Finally, the Department provides specific guidance concerning factors and business practices that should be excluded from the analysis, which it believes will provide additional clarity.

1. The Four-Factor Balancing Test

Employers and employer representatives widely expressed general support for the adoption of the proposed four-factor balancing test, agreeing that it would provide necessary uniformity, clarity, and certainty for businesses. For example, the HR Policy Association commented that the “Department's proposed rule, and in particular its proposed four-factor test, and related guidance expressly identifying key considerations and factors that are relevant and are not relevant, finally fill in the space where businesses confront joint employer issues today.”

See also

Center for Workforce Compliance (“CWC supports the four factor balancing test that DOL has proposed[.]”); Restaurant Law Center and the National Restaurant Association (RLC & the Association) (agreeing “that a multi-factor balancing test is appropriate”); Electronic Security Association (“[T]his four-factor balancing test as outlined will give more clarity and provide courts with firm guidance[.]”); National Council of Agricultural Employers (praising the “four-factor balancing test set forth in”

Bonnette

as “provid[ing] clarity and order”); NAHB (expressing support for the four-factor balancing test). Additionally, commenters noted that this increased clarity would, in turn, promote new and innovative business partnerships and allow for best practices within industries. The National Association of Truckstop Operators commented that the proposed test “would enable NATSO's members—large and small—to enter into a variety of business relationships with certainty as to whether they may be held responsible for another entity's employees. They would know that they could provide high-level requirements for their business partners' employees (

e.g.,

minimum training levels, inspection and delivery methods,

etc.

) and not be considered joint employers provided they do not affect the

terms and conditions of employment

(

e.g.,

hiring, firing, work schedules, wages,

etc.

).” Associated Builders and Contractors explained that inconsistent court rulings “have confused and frustrated efforts of construction employers to maintain longstanding industry practices that have allowed the industry to perform services on a cost-efficient basis, but which are now placed in jeopardy by the over-broad joint employer standard espoused by some courts and the increased litigation costs resulting from the judicial confusion.”

Employer representatives commented that there was support among circuit court rulings for using these particular factors. The National Retail Federation stated that the “

Bonnette

test has been used for decades by the plurality of U.S. Courts of Appeals, and if adopted, would provide employers with certainty and stability in how the joint employer standard applies to their operations and business relationships.” SHRM agreed, commenting that by “ensuring that the inquiry is directed at a putative joint employer's

actual control

over critical terms of employment, the proposal stands on solid ground statutorily, and is consistent with the relevant Supreme Court authority.” The International Franchise Association noted that the “

Bonnette

test has stood the test of time and provides the clearest guidance to employers and employees attempting to determine which business entities are or are not joint employers under specific circumstances.” The U.S. Chamber of Commerce further stated that the proposed test would help “rein in courts that have judicially expanded the scope of joint employer liability beyond Congress's intent” by providing uniformity and properly focusing only on the FLSA's definition of “employer” to determine joint employer status, rather than the broader definition of “employ.”

The Retail Industry Leaders Association (RILA) and Society of Independent Gasoline Marketers of America expressed general support, but expressed concern that the proposal may be read to indicate that satisfying any single factor would be sufficient to confer joint employer status, and these commenters requested that the Department specify that establishing one factor will typically not be sufficient.

Employee representatives, workers, and worker advocacy groups generally opposed the proposed four-factor test as too restrictive and commented that using this test would harm workers, particularly vulnerable and low-wage workers.

See, e.g.,

Greater Boston Legal Services (“Arbitrarily narrowing the standard to make it more difficult for employees to hold their actual employers accountable for FLSA violations will particularly harm low-wage workers and workers engaged in piecemeal, temporary, or contingent labor.”); NELA (“If enacted, the Proposed Rules will result in the loss of protections to workers whom Congress sought to protect by expansively defining the FLSA's coverage.”); Legal Aid Justice Center (“If enacted, the Proposed Rule would cause grievous harm to Virginia's poorest and most vulnerable workers.”).

Many of these commenters contended that the Department's proposed test is inconsistent with case law. Southern Migrant Legal Services disagreed with the NPRM's statement that the proposed four-factor test “finds considerable support in the plurality of circuit courts that already apply similar multi-factor, economic realities tests” and stated that this assertion “badly misstates the law.” Commenters noted that not a single circuit court has adopted the test as precisely formulated by the Department.

See, e.g.,

Coalition of State AGs (“The Proposed Rule incorporates a four-factor test that no court has articulated or implemented and is more restrictive than current joint-employment standards.”). The AFL-CIO also addressed the Department's legal analysis, commenting that the NPRM misreads

Bonnette

because the court in that case explicitly noted that the circumstances of the whole activity must be considered, not exclusively the four factors; the AFL-CIO noted further that

Bonnette

has been criticized or rejected by several other circuit courts, including the Ninth Circuit. Greater Boston Legal Services commented that the Department's proposed test would “wipe out decades of court precedent and create confusion and prolonged litigation. The Department has departed from

Bonnette

and prevailing First Circuit decisions in two ways—by altering the four-prong

Bonnette

test and by adding a series of additional proposals that further restrict criteria that courts may consider when determining joint employment status.”

Commenters also opined that the four-factor test was contrary to Congressional intent, and instead, courts must consider all relevant facts in view of the case law, statutory text, and legislative history.

See, e.g.,

National Women's Law Center (asserting that it would be contrary to Congressional intent and the language of the FLSA to limit the joint employer inquiry to just the

Bonnette

factors); Low Wage Worker Legal Network (same). Senator Patty Murray

stated that because “Congress intentionally drew the FLSA's definition of employment to be more expansive than the common law, the Department's proposal to narrow the standard is clearly and directly opposed to congressional intent.”

Additionally, many commenters stated that the proposed four-factor test was contrary to the plain language of the Act and its broad definitions of “employ” and employee.”

See, e.g.,

14 U.S. Senators (“But DOL proposes to ignore the plain language of the statute, inventing a new and extremely restrictive standard that employees would have to show to hold their employers liable for abuses for which Congress intended them to be responsible.”); NELP (“[C]ontrolling Supreme Court and Circuit Court authority conflicts with DOL's novel and unsupportable proposition that the definition of `employ' in section 203(g) does not authorize a court to find joint employment.”). These concerns are addressed in the textual basis discussion of this preamble,

supra,

in which the Department explains its interpretation of section 3(d) and why it is the most appropriate textual basis for analyzing whether an entity is a joint employer under the Act.

In addition to commenting on the proposed four-factor test generally, commenters also addressed the factors individually. Comments received regarding each individual factor follow below.

Commenters specifically remarked upon the Department's modification of the

Bonnette

test regarding the first factor. The Department proposed that the first factor should be narrowed to consider only whether the potential joint employer hires or fires the employee, rather than whether the potential joint employer has the “power” to hire or fire the employee (as

Bonnette

articulates the factor). Employer representatives supported the modification to require an actual exercise of control in this regard, stating that this would provide clarity for employers and encourage and increase innovative business agreements. For example, the U.S. Chamber of Commerce noted that the change reflected the “recognition that actual control, rather than reserved control, must exist for a joint employee-employer relationship to arise” and that “[i]t is also consistent with the Rule's statement that the facts of the relationship between the employee and employer, rather than the structure of the relationship between cooperating businesses, should govern.” Several commenters endorsed the NPRM's assertion that evaluating whether an entity “act[ed]” to exercise control would be consistent with the text of section 3(d) of the Act.

See, e.g.,

RLC & the Association (agreeing that the proposed modification is consistent with section 3(d) and that “[i]f there is no action by the alleged joint employer, then Section 3(d) does not apply, and there can be no joint employment relationship.”).

Employee representatives opposed this proposed factor, commenting that by only considering as relevant whether a potential joint employer actually exercises its power to hire and fire, the Department would be in conflict with every court, and would be narrowing the test to be even more restrictive than the common law.

See, e.g.,

Advocates for Basic Legal Equality (“Even under the more restrictive common-law employment test, the DOL's proposal is too narrow: It fails to consider the right to control, a cornerstone of common-law employment determinations under long-standing Supreme Court and FLSA law.”); NELP (“The restrictive common law control test requires only a showing of the `right' to control, not its exercise.”). Additional discussion concerning the actual exercise of control versus the reserved right to control is included

infra.

Regarding the second factor, whether the potential joint employer supervises and controls the employee's work schedule or conditions of employment, several commenters asked the Department to clarify or narrow what is meant by “conditions of employment.” For example, the HR Policy Association suggested that the proposed factor be limited to considering whether the potential joint employer “[s]upervises and controls the employee's individual work schedule or the employee's particular, day-to-day tasks.” Similarly, the Retail Industry Leaders Association suggested that the factor be limited to mean “specific hours worked and specific assigned tasks.”

See also

National Retail Federation (same); RLC & the Association (recommending “that a substantial frequency requirement be included in the definition and/or examples with respect to the second factor. Preferably, this would be a `day-to-day' frequency requirement”).

There were few comments specifically addressing the third factor, whether the potential joint employer determines the employee's rate and method of payment.

There were a number of comments, primarily from employer representatives, concerning the fourth factor, which considers whether the potential joint employer maintains the employee's employment records. Some commenters asked the Department to provide additional guidance regarding what qualifies as maintenance of employment records for purposes of the fourth factor and whether this factor alone can lead to a finding of joint employment.

See, e.g.,

NACS; NAPEO; RLC & the Association; SHRM. Some commenters suggested that records related to the employer's compliance with contractual agreements identified in this rule as not making joint employer status more or less likely should not qualify as employment records under the fourth factor.

See

CDW. Others suggested that for purposes of satisfying the fourth factor, only those records that pertain to the first three factors should be employment records.

See

RILA; SHRM. Commenters also queried whether maintenance of records under the fourth factor means something more than mere possession of or access to those records.

See

SHRM. Finally, some commenters suggested that the fourth factor be deleted in the final rule.

See

NACS; NAPEO; RLC & the Association.

After review and careful consideration, the Department adopts the proposed four-factor balancing test, derived from

Bonnette

and supported by other case law, as the test for analyzing joint employer status under this scenario, with a revision to the supervision and control factor and additional guidance regarding the maintenance of employment records factor. The Department believes that these four factors—which weigh the economic reality of the potential joint employer's control, direct or indirect, over the employee—are not only the most relevant factors to the joint employer analysis, but also afford stakeholders greatly needed clarity and uniformity.

As a matter of statutory interpretation, these factors are fully consistent with the text of section 3(d) of the Act. As explained in detail

supra,

the Department believes that language in section 3(d) is the textual basis for joint employer status. When another person exercises control over hiring and firing, schedules, conditions of employment, rate and method of payment, and employment records, that person is “acting . . . in the interest of” the employer “in relation to” the employee, as contemplated by section 3(d). Recognizing this provision,

Bonnette

adopted a similar four-factor test to determine whether a potential joint employer is liable. Contrary to some comments, these factors are consistent with Supreme Court and circuit court precedent. The Supreme Court concluded in

Falk,

414 U.S. at 195, that

pursuant to section 3(d), another person is jointly liable for an employee if that person exercises “substantial control” over the terms and conditions of the employee's work. The Department's four-factor balancing test, which weighs the potential joint employer's exercise of control over certain terms and conditions of the employee's work, uses the same reasoning as

Falk

to determine joint employer status under section 3(d). In

Falk,

the Court explained that “[i]n view of the expansiveness of the Act's definition of `employer' [in section 3(d)] and the extent of D & F's managerial responsibilities at each of the buildings, which gave it substantial control of the terms and conditions of the work of these employees, we hold that D & F is, under the statutory definition [in 3(d)], an `employer' of the maintenance workers.” 414 U.S. at 195.

Additionally, multiple circuit courts have adopted multi-factor balancing tests derived from

Bonnette

in order to analyze potential joint employer scenarios. The First and Fifth Circuits apply the

Bonnette

test, which is very close to the Department's proposed test.

See Baystate,

163 F.3d at 675-76;

Gray

Powers,

673 F.3d 352, 355-57 (5th Cir. 2012). Although

Gray

involved whether an individual owner of the employer corporation was jointly liable under the FLSA, the court noted that it “must apply the economic realities test to

each individual

or entity alleged to be an employer and each must satisfy the four part test.” 673 F.3d at 355 (emphasis added) (quotation marks and citation omitted).

The Third Circuit also applies a similar four-factor test that considers whether the potential joint employer has the authority to hire and fire, promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, and hours; it also considers whether the potential employer exercises day-to-day supervision, including employee discipline; and controls employee records, including payroll, insurance, and tax records.

See In re Enter. Rent-A-Car Wage & Hour Emp't Practices Litig.,

683 F.3d 462, 469-71 (3d Cir. 2012). As the Third Circuit noted, “[t]hese factors are not materially different” from the

Bonnette

factors, which are not significantly different from the Department's adopted factors.

Id.

at 469. The Seventh Circuit has also suggested that joint employment depends on the measure of control exercised over the employee and that the

Bonnette

factors are relevant when assessing control.

See Moldenhauer

Tazewell-Pekin Consol. Commc'ns Ctr.,

536 F.3d 640, 643 45 (7th Cir. 2008) (FMLA case addressing joint employment and using FLSA principles).

Two older Fifth Circuit decisions applied a different test to determine whether an entity was a joint employer under the Act, and the Fifth Circuit has not yet overruled those decisions—creating some uncertainty about what joint employer test applies in the Fifth Circuit.

See Hodgson

Griffin & Brand of McAllen, Inc.,

471 F.2d 235, 237-38 (5th Cir. 1973);

Wirtz

Lone Star Steel Co.,

405 F.2d 668, 669-70 (5th Cir. 1968).

The Department, of course, acknowledges that several other circuits currently apply varying joint employer tests. Indeed, this variance across the country is one of the primary reasons for this rulemaking; by promulgating a clear and straightforward regulation, the Department hopes to encourage greater consistency for stakeholders. Of the circuits that apply different joint employer tests, however, each of them applies at least one factor that resembles one of the factors from the Department's test. In

Salinas,

848 F.3d at 141 42, three factors of its six-factor test are similar to

Bonnette

factors; in

Layton

DHL Exp. (USA), Inc.,

686 F.3d 1172, 1176 (11th Cir. 2012), more than half of the factors in its eight-factor test are similar to

Bonnette

factors, and in

Torres-Lopez,

111 F.3d at 639-40, the court applied factors similar to the

Bonnette

factors but also added eight additional factors for consideration.

See also

Society of Independent Gasoline Manufacturers of America (“In the final rule, the Department should clarify that whether a person is a joint employer under FLSA depends on whether all four factors of the test have been met given the totality of circumstances.”) Seyfarth Shaw expressed concern that the proposed regulatory language could “be misconstrued by enforcement personnel or courts to suggest that any single factor . . . could suffice to confer joint employer status.”

The Department also received numerous comments from both employer and employee representatives regarding the proposed regulatory language stating that the “potential joint employer's ability, power, or reserved contractual right to act in relation to the employee is not relevant for determining joint employer status.”

Employer representatives praised the requirement of an actual exercise of control, and applauded the proposal's statement that reserved rights to control should not be considered relevant to the analysis. The National Retail Federation commented that it “strongly agrees with the Department's view that reserved but unexercised control should not affect joint employer status.” The Coalition for a Democratic Workforce noted that the emphasis on the actual exercise of control “is also consistent with Section 3(d) of the Act.”

See also

Retail Industry Leaders Association (“This modification is consistent with the FLSA's statutory admonition that a person or entity must “act[ ]” in the interest of an employer in relation to an employee to be an employer under the FLSA.”) (citation omitted).

Employer representatives also appreciated that the requirement of active control would be “similar to the test proposed by the National Labor Relations Board . . . related to the National Labor Relations Act . . . which would provide more uniformity among federal employment laws.”

See

CDW. Similarly, the National Federation of Independent Business also “welcomed” the Department's proposal and commented that the proposed language “harmonizes with the NLRB's pending proposal” and as such, “[s]mall and independent businesses would benefit significantly from having the joint employer doctrines of both the Department of Labor under the FLSA and of the National Labor Relations Board under the NLRA recognize that what a putative joint employer actually

does, and not what it theoretically could do, determines whether or not it has joint employer status with respect to an employee.”

SHRM commented that the proposal would be very helpful in clarifying employer obligations, because “actual exercise of power demonstrates control with a clarity that latent power can never achieve. By focusing on the actual exercise of power, the Department allows businesses to understand their FLSA obligations without worrying that the existence of boilerplate reservations of rights (

e.g.,

to terminate an employee of a staffing agency) or similar rarely-or-never-used contractual provisions might unexpectedly trigger overtime obligations for a group of workers who were never anticipated to be employees (of the secondary employer).” The U.S. Chamber of Commerce also supported the requirement for active exercise of control because, among other things, it is “consistent with the Rule's statement that the facts of the relationship between the employee and employer, rather than the structure of the relationship between cooperating businesses, should govern.” The Chamber explained that routine contractual reservations of control, such as contractual clauses that require contractors or business partners to meet certain goals and enforce certain criteria regarding their employees, “are not probative of the relationship between the employer and the putative employee—the touchstone of the joint employer analysis—if the putative employer never exercises such control.”

Employee representatives expressed strong opposition to the elimination of reserved rights of control from the joint employer analysis. Several commenters stated that the proposed elimination of the reserved right to control would be contrary not only to the Act, but also to the common law. The AFL-CIO, relying in part on sections 2 and 220 of the Restatement (Second) of Agency, stated that the common law “clearly recognizes reserved control as relevant to determining if an employment relationship exists.” Relatedly, NELP commented that “[t]he common law test for employment and joint employment does not require control to be exercised, direct, and immediate; only that the proposed joint employer have the right to control how the work is done.” NELP further observed that the NPRM narrows

Bonnette'

s common-law factors to an even narrower test, an interpretation under which “even many single-company direct employees would not be considered employees, despite the fact that they would be considered employees under the common law agency doctrine.” Sen. Patty Murray commented that “[t]he proposal absurdly indicates that the potential joint employer must actually exercise one or more of these factors, directly or indirectly, to be jointly liable under the FLSA” and stated that the Department's rationale for the proposal had “no basis in the text of the FLSA, no basis in Supreme Court doctrine or circuit court law, and—as was already established—no basis even in the common law test that Congress purposely rejected in crafting the FLSA.”

The AFL-CIO discussed a number of Supreme Court and circuit court cases recognizing reserved right to control in employment cases, and concluded that “considering a putative joint employer's right of control relevant to the analysis is mandated by the common law and the Department cannot establish a standard narrower than the common law.”

See also

NELP (“The DOL has no authority to so restrict settled law.”); SEIU (discussing federal court decisions applying section 3(g) that recognize that a company's right, power or ability to exercise control over an individuals' wages, hours and/or working conditions is relevant to determining if the company employs that worker). Greater Boston Legal Services commented that “[h]aving the ability, albeit unrealized, to fire an employee is clearly a mechanism of control over the nature of the relationship between the employee and the putative employer.” GBLS continued, stating that because the Department's proposal requires actual, exercised control, “under many conceivable circumstances will result in very different outcomes from cases analyzed under

Baystate,”

a case upon which the Department relied in the NPRM.

Referring to the Department's 1997 MSPA rulemaking, 62 FR 11739 (Mar. 12, 1997), Southern Migrant Legal Services commented that the proposed regulation “represents a complete reversal of the Department's position the last time it engaged in rulemaking regarding joint employer status.” SMLS stated that in that rulemaking, the Department rejected limiting control to an actual exercise of control, and concluded that where an employer retains any right to control the workers or the work, this would constitute control indicative of an employment relationship.

Additionally, several commenters requested that the Department clarify the limits of indirect control.

See

Seyfarth Shaw; RLC & the Association; Coalition for a Democratic Workplace; National Retail Federation; Retail Industry Leaders Association; World Floor Covering Association. For example, Seyfarth Shaw warned that, absent limiting principles, the “`indirectly' modifier could invite litigation in a wide array of circumstances,” such as where “a shipping facility indirectly controls a worker's schedule by cutting back on its staffing needs during a slow period, or that it indirectly fires a worker by relaying to the direct employer that the worker violated a rule.”

See also

RILA (“this modifier could invite litigation whether a particular action by a `benefited entity' constitutes `indirect' actual exercise of one of the

Bonnette

factors”). Seyfarth further requested that the Department “clarify that a benefited entity's legitimate business decision that has

incidental

impact on a worker's employment does not constitute acting indirectly in the interest of the employer.”

Other commenters agreed.

See

RILA; RLC & the Association. RLC & the Association explained their concern regarding indirect control in the context of when a restaurant “contract[s] out for cleaning services.” According to these commenters, “[i]f an individual whom the cleaning services assigns to perform that work does not do a good job, does not show up, is rude to the restaurant's customers, harasses the restaurant's employees or demonstrates other deficiencies, the restaurant must be able to report that to the cleaning service and to ask that someone else be assigned to perform such services. In this context, it is still the cleaning service's decision as to whether to fire the employee or assign him or her to some other account.” RLC & the Association thus requested that the Department clarify that “customer preferences and feedback do not constitute [indirect] hiring and firing, and that providing such feedback is not a factor that makes a joint employment relationship more or less likely.”

Upon careful consideration, the Department adopts a modified version of proposed § 791.2(a)(2) in response to the comments received, codified as § 791.2(a)(3) of this final rule. As an initial matter, as a point of clarification, all four factors need not necessarily be satisfied in order for an entity to be deemed a joint employer. The Department made clear in its proposal that, consistent with case law, the four factors represent a balancing test. Moreover, as noted many times by the Department and now embodied in this regulation, whether a person is a joint employer under the Act will depend on how all the facts in a particular case are tied to the factors, and the appropriate

weight to give each factor will vary depending on the circumstances.

In addition, the regulation now makes clear that an actual exercise of control, directly or indirectly, is required for at least one of the factors and is the clearer indication of joint employer status. The regulation also states, however, that a potential joint employer's ability, power, or reserved right to act in relation to the employee may be relevant for determining joint employer status, but such ability, power, or right alone does not demonstrate joint employer status without some actual exercise of control. For example, if a potential joint employer sets the wage rate for an employee and sets his or her weekly work schedule, and there was also evidence that this entity has authority to fire the employee at any time, then this reserved power would be relevant to the analysis and could properly be considered. The regulation also explains that standard contractual language reserving a right to act is alone insufficient for determining joint employer status; there still must be some actual exercise of control.

This more nuanced approach is responsive to comments stating that the Department proposed a regulation narrower than the common law—this is not the Department's intent. This approach is consistent with the type of fact-specific, totality of circumstances analyses required for potential joint employer scenarios, as well as the requirement that no single factor is dispositive in determining joint employer status under the Act. Finally, the Department is removing the reference to “economic reality” from § 791.2(a)(3) of the final rule to clarify that the focus of the fact-specific, totality of circumstances analysis that the Department is adopting is to determine joint employer status; “economic reality” is an interpretive principle—not the inquiry itself.

The Department agrees with the commenters that the concept of indirect, actual control requires further clarification. As an initial matter, it is necessary to distinguish direct from indirect control in the context of the first joint employer scenario. A potential joint employer may exercise direct control by, for instance, hiring or firing an employee; setting an employee's schedule; or determining an employee's pay. In each case, the inquiry focuses on the relationship between the potential joint employer and the employee. In contrast, indirect control must be exercised through another, intermediary employer. For example, the potential joint employer may exercise indirect control by directing the intermediary employer to fire or hire an employee; set an employee's schedule; or determine an employee's pay. In other words, indirect control refers to control that flows from the potential joint employer through the intermediary employer to the employee.

There are two relevant relationships in determining indirect control. The first relationship is between the intermediary employer and the employee: The intermediary employer must exercise direct control over the employee,

e.g.,

by firing, hiring, setting schedules, or determining pay. The second relationship is between the potential joint employer and the intermediary employer: If the potential joint employer directs the intermediary employer's exercise of control over the employee, indirect control exists. But agreeing to a mere request or recommendation, alone, is not enough for indirect control, but can be indicative in rare circumstances.

When presented with this scenario, many federal court decisions have drawn a sensible distinction between mandatory directions and mere suggestions or requests when analyzing indirect control.

For example, the Third Circuit articulated this distinction in

In re Enterprise

and held that such recommendations are not relevant to joint employer status. In that case, Enterprise Holdings lacked the necessary direct control or authority over a subsidiary's assistant managers for joint employer status.

The plaintiffs sought to demonstrate joint employer status on the basis of indirect control by arguing that Enterprise Holdings “functionally held many of these [authority] roles by way of the guidelines and manuals it promulgated to its subsidiaries.”

But the Third Circuit found “no evidence that Enterprise Holdings, Inc.'s actions at any time amounted to mandatory directions rather than mere recommendations.”

Therefore, “[i]nasmuch as the adoption of Enterprise Holdings, Inc.'s

suggested

policies and practices was entirely discretionary on the part of the subsidiaries, Enterprise Holdings, Inc. had no more authority over the conditions of the assistant managers' employment than would a third-party consultant who made suggestions for improvements to the subsidiaries' business practices.”

The Third Circuit's reasoning is grounded in common sense: If Enterprise Holdings lacks authority to require a subsidiary to adopt certain employment practices, it could not indirectly require the subsidiary's employee to adopt such practices. Conversely, courts have been willing to find joint employer status based, at least in part, on indirect control where the potential joint employer does have authority to require the intermediary employer to adopt employment policies and practices not related to quality control, legal obligations, or standards to protect the health and safety of the employees or public.

See In re Enter.,

683 F.3d at 470-71;

See also

Coalition for a Democratic Workplace (suggesting modifications).

The comment used the phrase “substantial control” but presumably meant “significant control” based on the context.

Other comments criticized allowing consideration of other factors. For example, FedEx asserted that “no other factors need be introduced” and that permitting consideration of additional factors would “leav[e] the door open for the next generation's patchwork of judge-made tests to emerge.” FedEx suggested, in the alternative if the final rule allows consideration of additional factors, that the Department clarify that the four factors “are the most important to any joint employer status analysis under the FLSA,” that “any other factor must result from actions that are material to FLSA compliance

and

regular in frequency to the relationship (rather than merely occasional or incidental),” and that any additional factors “carry less weight” than the four factors. Society of Independent Gasoline Marketers of America requested that the Department “remove” or “drastically revise” the provision allowing limited consideration of additional factors because it will “undercut” the clarity that the proposal would otherwise provide, “will inject significant uncertainty into any joint employment analysis (exactly what the Department is looking to do away with here),” and “will likely increase the instances of joint employment litigation.” RLC & the Association “recommend[ed] that no broad catch-alls be added” and was “concerned that having an `additional factors' aspect to the balancing test has the potential to open the floodgates, particularly because the terms `significant control' and `acting directly or indirectly' could be broadly construed.”

National Association of Professional Employer Organizations characterized the proposed limits on considering additional factors as an “alternative,” “catch-all” test that would “create[ ] a much broader analysis for joint employment than is currently recognized by either USDOL or federal courts analyzing the FLSA,” and requested that this alternative test be removed or rewritten. NAPEO expressed particular concerns that there is “no explanation of “otherwise acting directly or indirectly in the interest of the employer in relation to the employee,” that “a fair interpretation is that this language is at least as broad as the `not completely disassociated' language currently in the regulations,” and that “[t]his language creates an end around argument to apply joint employment in almost any situation.” The National Association of Convenience Stores expressed nearly identical concerns.

National Restaurant Association added, in the alternative: “To the extent additional factors are considered, they should be applied with caution, and it is crucial that the DOL identify in greater detail examples of business practices that should

not

be given any weight as part of the balancing test.”

A number of comments challenged the proposed limitations, arguing that they were too narrow and lacked any legal basis. For example, NELA asserted that the proposed limitations “contravene[ ] the fundamental principle that the Supreme Court articulated in

Rutherford Food

—that `the determination of the [employment] relationship does not depend on . . . isolated factors but rather upon the circumstances of the whole activity' ” (alterations made by commenter). NELA further asserted that “[c]ourts have relied on this principle for decades in determining joint employer status” (citing,

e.g., Bonnette,

704 F.2d at 1470;

Salinas,

848 F.3d at 142;

In re Enter.,

683 F.3d at 469;

Zheng,

355 F.3d at 71-72).

Senator Murray argued that the Department's reliance on

Falk

and

Bonnette

to support the proposed limitations is misplaced.

To the extent that the Department retains the proposed limitations in the final rule, NELA suggested many revisions.

Specifically, Senator Murray argued: “The Department attempts to cite to

Bonnette

and

Falk

to justify narrowing the possible review of additional factors to those that indicate `significant control,' but these cases do not support that proposition. In neither case did the courts limit the factors that could be considered in making a joint employment determination—nor did they hold or lend credence to a view that only factors indicating `significant control' were to be considered. In fact, the Department can cite to no portion of either holding that expresses this view. Rather, the Department cites generally to language in the holdings that state the employers had `substantial control' and `considerable control' without holding that those are the minimums to be met for any case of joint employment to be found.”

In addition, the Coalition of State AGs contended that the proposed limitations on consideration of additional factors “preclude[ ] consideration of categories of relevant evidence” and are “based on a misreading of

Bonnette.”

As explained by the Coalition of State AGs, the court in

Bonnette

acknowledged that, although its four factors “provide a useful framework for analysis in this case, . . . they are not etched in stone and will not be blindly applied. The ultimate determination must be based `upon the circumstances of the whole activity.' ”

Bonnette,

704 F.2d at 1470 (quoting

Rutherford Food,

331 U.S. at 730). Finally, SEIU stated that the proposed limitations on considering additional factors are, like the proposed four-factor test, “hopelessly flawed as a matter of law” because they too exclude section 3(g)'s definition of “employ” from the analysis (citing

Rutherford Food

), and that the proposed limited consideration of additional factors does not “redeem” the proposed rule.

After careful consideration of the comments, the Department adopts the text of § 791.2(b)(1)—which permits consideration of additional factors indicating whether the potential joint employer is “[e]xercising significant control over the terms and conditions of the employee's work”—as proposed. But the Department is eliminating § 791.2(b)(2), which permits consideration of additional factors indicating whether the potential joint employer is “acting directly or indirectly in the interest of the employer in relation to the employee.”

As discussed above, the Department is adopting a four-factor balancing test to determine joint employer status under the Act in the first scenario. Courts that apply multi-factor balancing tests leave open the possibility of considering other factors.

See, e.g.,

Bonnette,

704 F.2d at 1470 (“The four factors . . . provide a useful framework for analysis in this case, but they are not etched in stone and will not be blindly applied. The ultimate determination must be based `upon the circumstances of the whole activity.' ”) (quoting

Rutherford,

331 U.S. at 730);

In re Enter.,

683 F.3d at 469 (“We emphasize, however, that these factors

do not constitute an exhaustive list

of all potentially relevant facts, and should not be `blindly applied.' A determination as to whether a defendant is a joint employer `must be based on a consideration of the total employment situation and the economic realities of the work relationship.' ”) (quoting

Bonnette,

704 F.2d at 1470) (emphasis in original) (internal citation omitted);

Baystate,

163 F.3d at 675 (finding the factors used in

Bonnette

to “provide a useful framework”);

Wirtz,

405 F.2d at 669-70 (“In considering whether a person or corporation is an `employer' or `joint employer', the total employment situation should be considered with particular regard to the following [five factors].”). There is no basis for the Department to depart from this legal precedent of allowing the consideration of additional factors.

However, there must be limits on the consideration of additional factors when determining joint employer status, and the Department's limits under proposed § 791.2(b)(1) are reasonable. Because evaluating control of the employment relationship by the potential joint employer over the employee is the purpose of the Department's four-factor balancing test, it is sensible to limit the consideration of additional factors to those that indicate control. This limit is supported by the Third Circuit's decision in

In re Enterprise,

which recognized that “other indicia of `significant control' ” beyond the four factors that it enumerated may be relevant to determining joint employer status under the Act. 683 F.3d at 470. Accordingly, the Department's final rule adopts proposed § 791.2(b)(1), which allows for consideration of additional factors that indicate whether the potential joint employer has “significant control over the terms and conditions of the employee's work.” In response to comments asking about the interplay between this limit and the second factor of the Department's test (which assesses whether the potential joint employer

“controls the employee's . . . conditions of employment to a substantial degree”), “significant control over the terms and conditions of the employee's work” must include something more than control over the employee's “conditions of employment” or the limit would be superfluous. Thus, “terms and conditions of the employee's work” may include aspects of the potential joint employer's relationship with the employee that are not encompassed when applying the second factor and looking at the “conditions of employment”—but only if the additional aspect indicates significant control by the potential joint employer. For instance, the second factor is limited to supervision and control to a substantial degree of an employee's work schedule or work conditions. But in certain situations—for example, where an employee performs substantial remote work without opportunity for oversight—less supervision and control may constitute an indicator of significant control.

Proposed § 791.2(b)(2), however, does not provide meaningful limitation on the consideration of additional factors that do not indicate control because it simply repeats verbatim section 3(d) of the FLSA. And any future attempt by the Department to identify specific additional factors which fall within § 791.2(b)(2) through sub-regulatory guidance would be ineffective because the Department “does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language.”

Gonzales

Oregon,

546 U.S. 243, 257 (2006) (declining to defer to agency interpretation of “a parroting regulation”). Accordingly, the Department is not adopting proposed § 791.2(b)(2) in this final rule.

Economic Dependence

The proposed rule § 791.2(c)) stated that “[w]hether the employee is economically dependent on the potential joint employer is not relevant for determining the potential joint employer's liability under the Act.” 84 FR 14059. It further stated that “no factors should be used to assess economic dependence” when determining joint employer status, and identified examples of “factors that are not relevant because they assess economic dependence” as including whether the employee: (1) “[i]s in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight”; (2) “[h]as the opportunity for profit or loss based on his or her managerial skill”; and (3) “[i]nvests in equipment or materials required for work or the employment of helpers.”

Id.

The NPRM's preamble explained that, because under section 3(d) joint employer status is determined by the actions of the potential joint employer and not by the actions of the employee or his or her employer, any factors that focus on the actions of the employee or his or her employer are not relevant to the joint employer inquiry, including those focusing on the employee's “economic dependence.” 84 FR 14050. The NPRM's preamble stated that the three economic dependence factors identified as not relevant focus on whether the employee is correctly classified as such under the Act—and not on whether the potential joint employer is acting in the interest of the employer in relation to the employee.

Id.

While courts have used these factors for determining whether a worker is an employee or independent contractor, they are not relevant for determining whether additional persons are jointly liable under the Act to a worker whose classification as an employee has already been established.

Id.

In support, the NPRM's preamble cited the Eleventh Circuit's exclusion in

Layton,

686 F.3d at 1176, of two of the three factors as not relevant to the joint employer inquiry.

Id.

It further stated that courts have found that the “usefulness” of the traditional employment relationship test—which includes factors such as the skill required, opportunity for profit or loss, and investment in the business—is “significantly limited” in a joint employer case where the employee already has an employer and the question is whether an additional person is jointly liable with the employer for the employee.

Id.

(quoting

Baystate,

163 F.3d at 675 n.9).

Numerous comments expressed general support for excluding economic dependence as irrelevant when determining joint employer status.

See, e.g.,

American Bakers Association (factors that are used to determine whether a worker is an employee or an independent contractor “certainly are less relevant in a setting in which the worker has an acknowledged relationship with an employing entity”); Associated Builders and Contractors (agreeing that “ `economic dependence' on the potential joint employer should not determine the potential joint employer's liability” and “particularly support[ing] the three examples of `economic dependence' factors that the Department proposes to exclude from the joint employer analysis”); International Franchise Association (“strongly agree[ing] with the Department's rejection of [a standard] stating or implying that anyone who is `economically dependent' on another employer somehow becomes that employer's employee). Center for Workplace Compliance noted that, “[u]nfortunately, some authorities have found economic dependence to be relevant or even controlling in joint employment cases,” but asserted that a “sound textualist reasoning” of section 3(d) shows that the employee's economic dependence is not relevant to the joint employer inquiry. Seyfarth Shaw likewise agreed that “factors bearing on a worker's `economic dependence' relate to whether the worker is an `employee' under the FLSA and are not germane to the joint employment inquiry,” and it suggested five additional economic dependence factors to identify as irrelevant for determining joint employer status.

See also

RILA (suggesting exclusion of the same five factors); SHRM (suggesting exclusion of three similar factors).

Seyfarth Shaw suggested excluding: (1) The percentage or amount of the direct employer's income that is derived from its relationship with the putative joint employer; (2) The percentage or amount of an employee's income that is derived from assignment to perform work for a particular benefitted entity; (3) The number of contractual relationships, other than with the putative joint employer, that the direct employer has entered into to provide similar services; (4) The length of the relationship between the direct employer or its employees and the putative joint employer; and (5) The number of contractual relationships, other than with the direct employer, that the benefitted party has entered into to receive similar services. SHRM suggested excluding: (1) The percentage or amount of the direct employer's income that is derived from its relationship with the putative joint employer; (2) The length of the relationship between the direct employer or its employees and putative joint employer; and (3) The number of contractual relationships that one party has with other parties to provide or receive similar services.

Numerous comments disputed the Department's legal basis for excluding economic dependence from the joint employer analysis. For example, Senator Murray explained that “economic dependence is not only central to the analysis of whether the joint employment standard is met in a particular instance, it is the crux of the standard,” and that “[i]t defies logic to propose to ignore an employee's economic dependence on the potential joint employer in determining whether the potential joint employer satisfies the joint employer standard.” Quoting

Layton,

686 F.3d at 1177-78, and

Baystate,

163 F.3d at 675, she claimed that “even those cases the Department cites recognize the centrality of economic dependence to the inquiry.” Greater Boston Legal Services similarly challenged the NPRM's reliance on

Baystate,

argued that the NPRM was “selective in its

Baystate

quotations,” and concluded that the NPRM “therefore obfuscate[ed] the actual details of

Baystate

to narrow the joint employer standard when instead the Department's Proposed Rule directly contradicts

Baystate

itself.” NELA asserted that “[c]ourts have routinely found factors related to economic dependence useful and relevant in their analysis of joint employment.” Moreover, Farmworker Justice asserted that, by eliminating economic dependence from the joint employer inquiry, the Department is “rejecting an aspect of the inquiry that courts have used for decades” (citing cases). Farmworker Justice further asserted that it would be “remarkably inappropriate” for the Department to eliminate from the inquiry “several important factors that are commonly used to apply the FLSA test,” and especially whether the worker is in a specialty job given that

Rutherford Food

considered that factor.

See also

SEIU (describing as “wholly illogical” the notion that “simply because the stated circumstance would be relevant to a determination whether an individual is an employee or an independent contractor, that circumstance could not also be relevant to a determination whether that same individual is jointly employed by a second employer”). Nichols Kaster suggested an internal inconsistency in the Department's proposal because the economic dependence factors that it excludes may be relevant to showing control. “[E]conomic dependence factors such as who provides the materials and whether the work was performed on the alleged employer's premises should not be precluded from the analysis as the Department suggests. They could be highly relevant evidence of control or the power to control.” NELA agreed, stating that “the fact that a person worked on the premises of a company and that the company provided them with equipment and materials to do their job . . . may make it more likely than not the company is directly or indirectly controlling the working conditions” (citing

Zheng,

355 F.3d at 72;

Rutherford Food,

331 U.S. at 730).

Having reviewed and considered the comments, the Department adopts its proposed analysis of the role of economic dependence in determining joint employer status under the Act and makes one change to the text of § 791.2(c) in the final rule to add a fourth example of “factors that are not relevant because they assess economic dependence.”

Consistent with the Department's bifurcation of sections 3(e) and (g) to determine whether a worker is an employee under the Act and section 3(d) to determine whether additional persons are joint employers of an employee, economic dependence is indicative of a worker's status as an employee or not, but not indicative of whether an employee has a joint employer. Economic dependence as compared to the degree to which the worker is in business for himself or herself determines whether the worker is an employee under the Act or an independent contractor.

See Parrish

Premier Directional Drilling, L.P.,

917 F.3d 369, 379 80 (5th Cir. 2019);

Brock

Mr. W Fireworks, Inc.,

814 F.2d 1042, 1043 (5th Cir. 1987) (noting that the multiple factors of the test that distinguishes between employees and independent contractors “must always be aimed at an assessment of the `economic dependence' of the putative employees, the touchstone for this totality of the circumstances test.”);

Usery

Pilgrim Equip. Co.,

527 F.2d 1308, 1311 (5th Cir. 1976) (“The [multiple factors of the test that distinguishes between employees and independent contractors] are aids—tools to be used to gauge the degree of dependence of alleged employees on the business with which they are connected. It is dependence that indicates employee status. Each test must be applied with that ultimate notion in mind.”). Thus, a worker who is an employee is necessarily economically dependent on the employer with regard to the work. When determining whether that employee has another person who is a joint employer for the work, considering the employee's economic dependence as well will only lead to a false positive and will not be indicative. The typical laborer working drywall on a construction site, the typical staffing company employee sent to a client, and the typical driver driving a company vehicle, by virtue of their employee status, are not exercising special skill, initiative, judgment, or foresight, do not have the opportunity for profit or loss based on their managerial skill, and are not investing in equipment or materials required for work or employing helpers (notwithstanding any technical skills that they may have). Considering such economic dependence factors as part of a joint employer analysis would focus on the employee's own status, would almost always suggest economic dependence when the worker is already employed by an employer for the work, and would not be helpful in determining whether the other person is also the employee's “employer” (

i.e.,

a joint employer) for the work.

Cf. Layton,

686 F.3d at 1176 (“Because it had been determined that the farm workers were employees of the contractor, there was no need to evaluate whether hallmarks of an independent-contractor relationship existed.”) (citing

Aimable

Long & Scott Farms,

20 F.3d 434, 443-44 (11th Cir. 1994)). Thus, determining whether the other person is the employee's joint employer necessitates looking beyond the employee's own economic dependence, looking at the relationship between the employee and the other person, and resolving whether that other person is the employee's employer too. The Department's proposed four-factor balancing test does exactly that, and accordingly, economic dependence should not be considered.

Finally, the Department believes that the three examples of “factors that are not relevant because they assess economic dependence” identified in proposed § 791.2(c) strike an appropriate balance and that identifying many additional factors in the text of the final rule is not warranted. Nonetheless, although the additional factors suggested by Seyfarth Shaw and others are not part of courts' economic dependence analysis when determining whether a worker is an employee or independent contractor under the Act, the Department is of the view that one of the suggested factors—the number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services—is not encompassed by the joint employer test that the Department is adopting for the first scenario. Specifically, this suggested factor is not relevant to the four-factor balancing test that the Department is adopting and does not otherwise indicate that the potential joint employer is exercising significant control. Whether a business needs only one vendor or supplier or many to provide a particular product or service at a time does not indicate whether that business is exercising significant control over the employees of any particular vendor or supplier. The Department is therefore adding this factor to the list of irrelevant factors in § 791.2(c).

On the other hand, the Department believes that the other suggested factors may sometimes touch on whether the potential joint employer is exercising significant control,

and thus may

indicate that the potential joint employer is acting directly or indirectly in the interest of an employer in relation to an employee.

The other suggested factors include: (1) The percentage or amount of the direct employer's income that is derived from its relationship with

the putative joint employer; (2) The percentage or amount of an employee's income that is derived from assignment to perform work for a particular benefitted entity; (3) The number of contractual relationships, other than with the putative joint employer, that the direct employer has entered into to provide similar services; and (4) The length of the relationship between the direct employer or its employees and the putative joint employer.

4. Joint Employer May Be Any Person

Because section 3(d) defines “employer” as “any

person

acting directly or indirectly in the interest of an employer in relation to an employee,” the Department proposed adding in § 791.2(d)(1) the Act's definition of “person” in section 3(a) to make it clear that a joint employer under section 3(d) broadly encompasses every kind of person contemplated by the Act. NELA commented that the full definition of “employer” in section 3(d) states that an employer includes “ `any person acting directly or indirectly in the interest of an employer in relation to an employee' ” and includes a public agency, but does not include “any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization” (quoting section 3(d)). NELA expressed concern that by mirroring the language in section 3(a) that defines person without putting it in the context of the complete definition of employer as found in section 3(d), the proposed section could read as excluding public agencies from the definition of joint employer, and impermissibly including labor organizations, even when not acting as an employer. After reviewing this comment, the Department acknowledges that the full definition of employer in section 3(d) is applicable to a joint employer. The definition of “person” from section 3(a) was incorporated into proposed § 791.2(d)(1) to clarify that the joint employer concept includes every kind of person contemplated by the Act, and was not intended to alter the definition of what type of entity could be considered a joint employer. Accordingly, the Department has incorporated into § 791.2(d)(1) additional language from section 3(d) of the Act to ensure that the definition of person in this section is read within that context.

5. Business Models, Contractual Provisions, and Business Practices That Do Not Make Joint Employer Status More or Less Likely

In the NPRM, the Department proposed to clarify that a person's business model—for example, operating as a franchisor—does not make joint employer status more or less likely under the Act, because a person's business model does not indicate whether it is “acting . . . in relation to” an employee of an employer. 84 FR 14051. The Department also proposed excluding as irrelevant to the joint employer inquiry certain contractual provisions intended to encourage legal compliance or promote desired societal effects, such as provisions requiring an employer to institute workplace safety practices, sexual harassment policies, wage floors, morality clauses, or other provisions encouraging the employer's compliance with their legal obligations. To the extent that a business merely requires the employer to institute such general policies, and does not itself enforce the contractual provisions with respect to the workers, the Department proposed that such contractual provisions do not make joint employer status more or less likely.

See id.

Similarly, the Department proposed clarifying that certain business practices where a potential joint employer merely provides or shares resources or benefits with an employer—such as providing sample handbooks or other forms to the employer, allowing an employer to operate a facility on its premises, offering an association health or retirement plan to the employer or participating in such a plan with the employer, or jointly participating with an employer in an apprenticeship program—do not make joint employer status more or less likely.

Id.

The Department explained that merely providing or sharing the resources or benefits, in the absence of any action by a potential joint employer to control the use of the resources or benefits by the employer's employees, does not constitute “acting . . . in relation to” the employees.

Id.

Many employer representatives supported the proposals described above, agreeing that such business interactions do not involve exercising control over the employees or otherwise acting directly or indirectly or indirectly in the interest of an employer to an employee.

See, e.g.,

American Hotel and Lodging Association; Center for Workplace Compliance; Coalition for a Democratic Workplace; International Franchise Association; RLC & the Association; Retail Industry Leaders Association; Society for Human Resource Management; U.S. Chamber of Commerce. Many of these commenters asserted that this proposed language would provide additional clarity and encourage mutually beneficial business relationships that would ultimately also benefit workers by allowing larger businesses to provide guidance, resources, and best practices to smaller businesses without inadvertently risking joint employer liability.

See, e.g.,

American Hotel and Lodging Association; Coalition for a Democratic Workplace; Society for Human Resource Management; U.S. Chamber of Commerce. Several other commenters, including the American Hotel and Lodging Association, HR Policy Association, Society of Independent Gasoline Marketers of America, and several members of Congress, also noted that these provisions will further encourage businesses to be good corporate citizens by promoting or requiring higher legal or ethical standards in their relationships with other businesses, to take the appropriate steps to ensure the safety of all employees, or to foster safe and informed workplaces.

Although few worker representatives commented specifically on this portion of the NPRM, those that did were unanimously opposed to the proposal to consider these factors as making joint employer status neither more or less likely.

See

AFL-CIO; Center for Law and Social Policy; Greater Boston Legal Services; NELA; United Brotherhood of Carpenters and Joiners of America. These commenters indicated that the proposed provisions would eliminate potentially relevant factors from consideration, as there may be circumstances in which these business models, business practices, or contractual provisions involve the exercise of direct or indirect control over employees' schedules, conditions of employment, rates and methods or payment, or the maintenance of employee records, particularly when considered in light of the totality of the circumstances. Commenters noted that as courts have repeatedly stated, whether a person is a joint employer under the FLSA will depend on all of the facts in a particular case, and they therefore objected that to exclude certain facts, such as business models, contractual agreements, or business practices, as irrelevant in all instances impermissibly prevents those facts from being considered in that broader context.

See

Greater Boston Legal Services (“[T]he Department's proposal shreds the reasoning of

Baystate

applied in its progeny decisions, explicitly excluding consideration of ways in which a putative employer controls the terms and conditions of work that have been important to courts when deciding joint employer questions.”); AFL-CIO (“The proposed rule departs from the Supreme Court's, the common law's, and its own command by wholly discounting elements of the relationship between the putative joint employers and between the employees and the alleged joint employer.”) These comments were often made in the context of the worker representatives' broader objections to the Department's proposed language indicating that the textual basis under the FLSA for joint employer status is section 3(d), rather than sections 3(e)(1) or 3(g), or objections that the Department's proposed four-factor test is an impermissibly narrow interpretation of joint employer status, as discussed above.

After carefully considering the comments on this issue, the Department has determined that the part 791 regulations should appropriately categorize certain business models, business practices, and contractual provisions as making joint employer status neither more or less likely. As previously discussed, the Department has determined that section 3(d) is the textual basis for joint employer status in the FLSA, and that its four-factor test derived from

Bonnette

is the appropriate analysis for determining joint employer status in situations where a potential joint employer benefits from the work performed by another business' employees. Therefore, the relevance of additional factors should only be considered in the context of whether these factors could potentially indicate that a potential joint employer is “acting directly or indirectly in the interest of an employer in relation to an employee,” not whether some other standard or test is being met. However, the business models, business practices, and contractual provisions identified in the NPRM, as revised and finalized here, do not involve a potential joint employer “acting directly or indirectly in the interest of an employer in relation to an employee.” Instead, they involve businesses acting in relation to each other to develop or strengthen a mutually beneficial business relationship, improve the work products used in that business relationship, or encourage compliance with legal obligations or health and safety, standards. In any event, for a potential joint employer to use such general business models, practices or contractual provisions to exercise direct or indirect control over another employer's employees, the potential joint employer would have to take some action toward those employees to require or enforce these general practices and policies in relation to those particular employees. In that case, the relevant factor would be that action on the part of the potential joint employer, not the general practice or policy that the potential joint employer imposed on the employees themselves, and the action would be considered in determining the extent to which the potential joint employer acted to exercise control over the employees' terms or conditions of employment.

In addition to generally supporting the proposals identified in proposed § 791.2(d) of the NPRM, many employer representatives requested clarification as to those items or suggested additional business models, contractual agreements, or business practices that should also be identified as not making joint employer status more or less likely.

See, e.g.,

Associated Builders and Contractors; Center for Workplace Compliance; International Franchise Association; RLC & the Association; Seyfarth Shaw; Society for Human Reso

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