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DOL Proposes New Rule to Clarify Joint Employer Relationship


DOL proposed four-factor test for determining joint employer relationship

In 2017 the DOL indicated that it was withdrawing the Obama administration’s joint employment guidance and on April 1, 2019 proposed a new rule that, if adopted, will substantially narrow the definition of a joint employer.  Under the current rule, two persons or entities are joint employers if they are not “completely disassociated” with respect to the employment of an employee.   Under the new rule, a person or entity would be considered a joint employer “only if that person is acting directly or indirectly in the interest of the employer in relation to the employee.”

To assist in determining if the above condition is met, the DOL is proposing a four-factor test “based on well-established precedent” that would consider whether the potential joint employer (1) actually exercises the power to hire or fire the employee; (2) supervises and controls the employee’s work schedules or conditions of employment; (3) determines the employee’s rate and method of pay; and (4) maintains the employee’s employment records. 

Secretary of Labor Alexander Acosta said “The proposal will reduce uncertainty over joint employer status and clarify for workers who are responsible for their employment protections.”  

Clarification of the joint employer relationship is significant in various employment models, including but not limited to, franchisor-franchisee relationships, portfolio member companies, employees placed by staffing or temporary agencies.  As an example, based on the new rule, if a company executes a services agreement with a staffing firm, the company’s desire to reserve its rights to dismiss employees provided by the staffing firm will not make the company a joint employer for those employees.  However, when the company actually exercises its right to dismiss the employee it would become a joint employer under the firing factor. 

The following are examples of employment practices that, by themselves, will not make joint employment likely under the new rule.

  • Allowing an employer to operate a business on another employer’s premises
  • Participating in an apprenticeship program with another company
  • Providing a sample employee handbook to a franchisee.
If passed, the rule will considerably narrow the definition of a joint employer and clarify the types of entities that may be held jointly liable for another employer’s wage-and-hour and/or discrimination violations. 
As soon as the proposed new rule is published in the Federal Register, submission of comments can be made within 60 days.   Publication is expected soon.

The foregoing has been prepared for the general information of clients and friends of Workplace Dynamics LLC and is not being represented as being all-inclusive or complete. It has been abridged from legislation, administrative ruling, agency directives, and other information provided by the government. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel.