The federal Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees at least minimum wage plus overtime compensation. If an employee is unpaid or underpaid — due to a calculation error or an employee’s unreported time worked, including remote work arrangements during the pandemic — the employee may recover back pay, liquidated damages, attorneys’ fees and litigation costs. If two or more employers have a relationship with an employee — for example, if an employee works for a staffing agency and is assigned to work at the agency’s customer or an employee performs work for two with common ownership or management — the law may deem the employers to be joint employers with joint and several liability, depending on the facts. If one joint employer fails to comply with the FLSA, both joint employers may be held liable. Different laws use different tests for joint employment.
In 2020, the U.S. Department of Labor (DOL) under the Trump Administration issued a rule adopting a four-factor test for joint employment under the FLSA. That test would have considered whether the potential joint employer hires or discharges employees; supervises or controls work schedules; sets pay rates; and maintains employment records. This test focuses on the actual control over the relationship, and is generally a higher standard to meet.
In March 2021, the Biden Administration’s DOL rescinded the Trump Administration’s rule. Under the Biden Administration, the DOL will use the economic realities test, which examines whether the worker is economically dependent on the potential joint employer by looking at the totality of the circumstances. The Biden Administration’s final rule was supposed to become effective September 28, 2021. However, the DOL moved the effective date to October 5, 2021. Beginning October 5, 2021, the DOL will use the economic realities test to determine joint employment status for purposes of the FLSA.
For example, if an employer uses a staffing agency, the agency should be financially sound and give contractual assurances that it does, and will, comply with the FLSA. Similarly, a staffing agency will want to make sure the worksite employer abides by all applicable laws. Defense and indemnification provisions may also be considered. Employers should also make sure to comply with all applicable laws governing employment generally while keeping in mind that different state laws require different tests to determine joint employer liability. Employers with questions concerning wage & hour compliance — including joint employer liability — should consult with employment counsel.