Joint employment is a topic you may have heard about — especially lately. The increased interest in it occurred because the U.S. Department of Labor (DOL) released a new rule related to joint employment and the Fair Labor Standards Act (FLSA).
Let’s take a look at the basics of joint employment, as well as some positives and negatives associated with it.
What Does Joint Employment Mean?
A joint employee is a person hired by one company to perform work for another. Consider the example of a person coming on board at an event staffing company, and then accepting an opportunity to work at a concert venue as a security guard. In that case, the staffing enterprise probably had a contract with the facility that required it to provide a sufficient number of employees for each event.
When the staffing agency hires a new employee, that action helps them fulfill their contract with the client. Plus, the client — a concert venue in this example — directly benefits by getting more security assistance to keep attendees safe.
The tricky thing about joint employment is that all employers utilizing this approach must adhere to the FLSA, including its specifics about overtime pay and minimum wage. One party cannot merely assume the other employer is doing everything required to stay within the law, and they are off the hook. All employers in such a relationship bear both individual and shared responsibilities for upholding any applicable laws.
What Are the Two Types of Joint Employment?
Now that you know the basic definition of joint employment, it’s a good time to point out that there are two types — vertical and horizontal.
Vertical joint employment happens when the nature of the arrangement makes a worker economically dependent on all employers involved. The concert venue example above falls under this category. A worker can only make money if the staffing agency makes them aware of events requiring security employees, and the facility continues to host musical events that are large enough to require extra personnel to ensure safety.
Horizontal employment, conversely, sees one employee fulfilling different responsibilities at two separate but related companies. Consider an arrangement where a local entrepreneur owns both a deli and a bakery located at separate ends of the same city. Each one runs individually, but the entrepreneur who owns both of them provides the link between the enterprises. If a worker splits their time between those businesses, they are a horizontal joint employee.
What Should You Know About the Department of Labor’s Ruling?
On January 12, 2020, the U.S. Department of Labor issued a final rule about joint employment under the FLSA. It does not make distinctions between vertical and horizontal employment. The bulk of the decision centers on a multifactor balancing test to determine if an entity is a joint employer. It looks at whether the potential joint employer:
- Possesses the authority to hire or terminate a worker.
- Exercises control over the work environment and schedule.
- Sets the worker’s pay rate and form of payment.
- Keeps employment records for the hired individual.
This ruling went into effect on March 16, 2020. However, it’s not as straightforward as the list above might indicate. The DOL published a document to answer some common questions concerning whether a person is a joint employer. It said that the amount of weight given to each of the four factors varies per individual cases. An entity need not satisfy each one, in other words.
However, the DOL document also confirmed that merely keeping employment records for a person was not enough to designate joint-employer status. Additionally, if a person could assume control and supervision of someone’s environment and schedule but chooses not to do it, the new ruling would not consider them joint employers based on the second point mentioned earlier.
Joint Employment and the Family and Medical Leave Act (FMLA)
The topic of joint employment also comes up regarding the Family and Medical Leave Act (FMLA). It allows eligible employees of employers covered by the FMLA to take unpaid time off for family or medical-related reasons without the risk of losing their jobs. Those workers also get continuing group health insurance coverage during such absences, to the same extent as their usual time at work.
Joint employment determines employer coverage and employee eligibility under the FMLA. More specifically, the DOL explains that all joint employers must comply with the FMLA. It also clarifies the need to differentiate between a primary and secondary employer and cites the four-prong test above as helping confirm whether an enterprise acts as the principal entity.
The documentation mentions that in the case of someone working for a staffing agency, that employer is most commonly the primary entity under the FMLA stipulations. There is also an eligibility requirement regarding an employee’s worksite. A qualifying location is one where the work provider employs at least 50 employees within 75 miles.
A joint employee’s primary worksite is usually the place where they receive work assignments or report for duty. That changes, though, once the person physically works at the secondary location for at least a year. At that point, the destination becomes the primary worksite under the FMLA rules.
FMLA Responsibilities to Know
Primary and secondary entities also have certain FMLA obligations to carry out concerning the employee’s circumstances.
For example, a primary employer must:
- Provide notices to employees as required.
- Give the permitted time away from work under the FMLA.
- Retain group insurance benefits during the leave period.
- Employ the worker in the same job or an equivalent one when they return.
- Uphold the requirements of the FMLA even if the secondary employer doesn’t follow suit.
- Keep all FMLA-related records associated with the joint worker.
Moreover, the secondary employer’s responsibilities include:
- Keeping an employee’s identifying information and payroll data during the leave period.
- Giving the worker the same job or a comparable one in certain situations.
- Extending FMLA benefits to all its eligible permanent employees.
Besides those specifics, neither a primary or secondary employer can engage in any actions to retaliate against, show discrimination towards, or interfere with a party carrying out or seeking FMLA benefits.
The Possibility of Legal Troubles Arising From Joint Employment
One of the leading legal concerns of a joint employment arrangement is that it could make a company equally liable if another associated enterprise fails to pay a worker the minimum wage or give them extra money for working overtime. Remember, multiple entities may be jointly and severally liable when only one fails to treat the employee according to what the law requires.
If two companies coordinated with each other to decide when a worker spent time at one enterprise versus the other, one could not insist that they played no part in the fact that the other company denied the employee their rights under the FLSA.
The DOL’s new ruling does create some scenarios whereby employers generally do not satisfy the four-prong balancing test described in the earlier section, however. For example, both a franchiser and a staffing agency representative usually do not participate in direct oversight of employees, although they may set their schedules by offering certain opportunities. Thus, those parties don’t often meet the third bullet point of the test above.
Due to the differing specifics surrounding particular situations, it’s always best for any employer or employee in doubt to seek legal advice about the nature of the circumstances in question. Otherwise, they could deal with stressful legal complications.
In February 2020, 17 states and the District of Columbia filed lawsuits to show their dissatisfaction with the DOL’s joint employment rule. Making things even more complicated is the fact that some states have joint employment laws carrying more power than the Department of Labor’s decision.
Crystal Page, a spokeswoman for the California Department of Labor, said, “The definition of employer in California is broad enough to reach any person, company or agency who directly or indirectly employs or exercises control over an employee’s wages, hours or working conditions.” California’s labor laws are not preempted by the FLSA, which means the state’s decisions on what constitutes joint employment take precedence over the federal ruling.
Also, Colorado announced plans to hold a remote hearing on May 15 related to several labor issues, including a joint employment definition. It’s undoubtedly wise for employers to understand the federal specifics about joint employment. As these examples show, however, states may have the final say in what constitutes joint employment.
When Might Joint Employment Work Well?
Despite the legal stipulations that could make some employers feel uncertain, joint employment could benefit everyone involved in some circumstances. Consider a horizontal joint employment agreement where two medical practices owned by one entity but operating separately coordinate to utilize the services of one lab technician. Such an arrangement could allow that employee to go back and forth between each facility as needs fluctuate.
Envision the case where a worker possesses skills in tremendous demand, such as cybersecurity auditing and penetration testing. That employee could find themselves never lacking for work because they divide their time between several joint employers that all need help keeping their online infrastructures free from vulnerabilities.
Joint employment could also give workers an enticing amount of flexibility if the parties in the arrangement have varying deadlines for the required work. Then, workers could vary their time at each location, depending on their estimates for the time expected to do the jobs.
Related Terms You May See
While researching joint employment, don’t be surprised to come across content mentioning “co-employment” or “shared employment.” People often use those terms to discuss arrangements that are the same or very similar to joint employment. Be aware, though, that employment sharing is a bit different because it typically means that several employees divide up the work of one full-time employee, and each one comes in to do it at various times to provide complete coverage.
Also, a professional employment organization (PEO) begins a joint employment situation with an employer by leasing its workers to an entity providing work. One of the advantages for an employer of working with a PEO is that it may allow them to outsource all or some of the human resources duties. If the employer represents a small company or does not have the time or desire to take care of that stuff independently, the PEO could provide a welcome break.
However, the PEO contract must include an administrative services outsourcing (ASO) section in that case. It spells out what the PEO handles for the employer, whether needs like drug testing or hiring new workers.
Co-employment can also be particularly helpful when several employers come together and realize they have some of the same needs to fill. Then, one employee with the desired skills could go to each employer in the arrangement when required.
Joint Employment to Weather the COVID-19 Crisis
Besides the newly published DOL rule and balancing test mentioned above, joint employment is a newsworthy topic due to another recent reason — the COVID-19 coronavirus pandemic. Many businesses find themselves dealing with unprecedented circumstances, wondering if joint employment could help them recover during these uncertain times.
For example, Chinese companies temporarily hired workers from other entities who found themselves idle once factories shut down in the country. China, like other nations, dealt with considerable jumps in demand for things like delivered food and medical masks. Sharing employees that way allowed enterprises to adjust to changing needs.
One of the first companies to try that way of getting employees was reportedly a supermarket in need of more delivery drivers. Also, when employees formerly worked on assembly lines, the people who hire them on a short-term basis say they can often get to work right away with limited training, able to help make supplies that people need most.
Could Joint Employment Threaten Workers’ Safety During the Coronavirus?
Joint employment could also pose hazards to joint employees deemed essential during the coronavirus pandemic. A National Labor Relations Board (NLRB) rule implemented on April 27 said that an employer is not a joint one unless they exercise direct control over the person’s workplace conditions. You’ll likely notice that stipulation is very similar to one of the parts of the DOL’s four-part balancing test.
Health and safety are not among the factors covered in the workplace environment according to the NLRB, however. Many critics say that the rule prevents workers from demanding personal protective equipment (PPE) if they work as cleaning employees at a hospital through a staffing agency, for example.
Moreover, the newly established rule relieves joint employers from bargaining with workers about safety equipment if those employees took collective action and refused to stay on the job without protection.
It’s still too early to say whether the NLRB decision puts people in danger, or if that outcome is a theoretical possibility. People in the corporate world should stay abreast of the subject to see how things develop in this area.
Should You Be a Joint Employer?
Acting as a joint employer is not the right decision for everyone, and you should not get into the situation without understanding all the relevant factors surrounding it. However, the overview here gives you a good grasp of joint employment, making it easier to figure out if you should pursue it further.