Final Rule on Joint Employer Test

January 27, 2021
Hall Benefits Law, LLC

Earlier this year, the Department of Labor (DOL) updated its regulations under the Fair Labor Standards Act (FLSA) pertaining to the determination of joint employer status under the FLSA. A joint employer is any additional “person” (i.e., individual or entity) that is jointly and severally liable with the employer for the employee’s wages.

The DOL establishes a four-factor balancing test for determining joint employer status when a potential joint employer benefits from work by another employer’s employee(s). The balancing test is taken from the Ninth Circuit’s 1983 ruling in Bonnette v. California Health & Welfare Agency, and assesses whether the potential joint employer:

  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.

The final rule provides that no single factor is dispositive in determining joint employer status, and the appropriate weight given each factor will vary depending on the circumstances.  However, the rule notes that satisfaction of the employment record maintenance factor alone does not constitute joint employer status.

In addition, the final rule recognizes several business models, contractual agreements, and business practices considered to be neutral — meaning that they do not make joint employer status more or less likely under the FLSA:

  • Operating as a franchisor or entering into a brand and supply agreement, or using a similar business model;
  • The potential joint employer’s contractual agreements with the employer requiring the employer to comply with its legal obligations or to meet certain standards to protect the health or safety of its employees or the public;
  • The potential joint employer’s contractual agreements with the employer requiring quality control standards to ensure the consistent quality of the work product, brand, or business reputation; and
  • The potential joint employer’s practice of providing the employer with a sample employee handbook, or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practice.

Hall Benefits Law has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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