The United States Department of Labor (DOL) is limiting joint employer liability under the Fair Labor Standards Act (FLSA), it announced in final regulations published on Sunday.
The rule, which will be published in the Federal Register on Thursday, makes it harder for businesses to be held liable when their franchisees or contractors violate FLSA.
Under the FLSA, an employee may have, in addition to their employer, one or more joint employers—additional individuals or entities that are jointly and severally liable with the employer for the employee’s wages. The FLSA requires covered employers to pay their employees at least the federal minimum wage for every hour worked and overtime for every hour worked over 40 in a workweek.
“The changes in this final rule break down barriers that keep companies from constructively overseeing, guiding and helping their business partners,” said Wage and Hour Division Administrator Cheryl Stanton in the DOL’s release. “For small business owners, and the employees working in those businesses, the relationship and the guidance coming from franchisors and other contracting companies can greatly improve the workplace and help them create jobs.”
The DOL’s final rule includes a “four-factor balancing test” that would consider whether the potential joint employer has the power to:
- Hire or fire the employee;
- Supervise and control the employee’s work schedules or conditions of employment;
- Determine the employee’s rate and method of payment; and
- Maintain the employee’s employment records.
These revisions will add certainty regarding what business practices may result in joint employer status. This rule promotes greater uniformity among court decisions by providing a clearer interpretation of FLSA joint employer status. These benefits will in turn improve employers’ ability to remain in compliance with the FLSA and will help reduce litigation costs.