Tech & Sourcing @ Morgan Lewis

Even with the standard independent contractor provision in a Master Services Agreement, when employees of the contractor work at a client's site, there can be a heightened risk for joint employment liability, especially where such employees were hired by the contractor as part of an outsourcing arrangement. The US Department of Labor (DOL) recently issued a Notice of Proposed Rulemaking (NPRM) to update its interpretation of the standard for establishing joint-employer liability under the Fair Labor Standards Act (FLSA). The proposal is “designed to promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy” by making clear employers’ and joint employers’ respective obligations to pay the appropriate employee wages and overtime for a workweek.

Under the FLSA, companies that are “joint employers” are jointly and severally responsible for any employment-related liability arising out of an employment matter, including wages, overtime, meal/rest premiums, and expense reimbursement.

Per the NPRM, the DOL’s proposed interpretation of the joint employer standard (derived predominantly from Bonnette v. California Health & Welfare Agency[1]) would use a new “four-factor balancing test” that assesses whether the purported joint employer:

1. (1) hires or fires an employee;
2. (2) supervises and controls thee employee’s work schedule or conditions of employment;
3. (3) determines the employee’s rate of pay and method of payment; and
4. (4) maintains the employee’s employment records.

The test would be limited to “actions taken with respect to the employee’s terms and conditions of employment, rather than the theoretical ability” to take such actions. Further, under the proposed standard, “whether the employee is economically dependent on the potential joint employer is not relevant for determining the potential joint employer’s liability under” the FLSA.

On May 13, 2019, the DOL announced that the 60-day comment period for this important NPRM has been extended until June 25, 2019. For a more detailed analysis and background information on the proposed new rules and the joint employer standard, please see our LawFlash, Joint Employer Standard: DOL Extends Comment Period on Proposed Revisions. 

We will continue to monitor the finalization of these new rules and the impact of the rules on joint employment issues. Look for additional updates at Tech & Sourcing @ Morgan Lewis.