“Joint Employment:” What it
Means and How to Ensure
Compliance
March 9, 2016
Shannon D. Farmer
[email protected]
215.864.8221
Denise M. Keyser
[email protected]
856.761.3442
Ashley L. Wilson
[email protected]
215.864.8364
16354417 v.1
Overview
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•
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“Horizontal” and “Vertical” Employment
The Department of Labor’s July 2015 Guidance
The National Labor Relations Board
Other Federal Law and Joint Employment
o
o
o
o
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Occupational Safety and Health Administration
Title VII
The Americans with Disabilities Act
Family and Medical Leave Act
State Legislation
Potential Immigration Implications
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“Horizontal” and “Vertical”
Employment
3
DMEAST 13840678
“Horizontal” and “Vertical” Employment
•
In January 2016, the DOL issued Administrator’s
Interpretation No. 2016-1, warning employers that “joint
employment” has become more common in light of the
growing variety of business models and labor
arrangements.
•
The guidance first discusses the broad definition of
“employment” under the FLSA and the Migrant Seasonal
Agricultural Worker Protection Act.
•
It then examines the concepts of “horizontal” and
“vertical” employment.
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“Horizontal” and “Vertical” Employment
•
Horizontal joint employment exists when two (or more)
employers each separately employ a worker, but are so
closely associated with each other with respect to the
employee that the hours worked by the employee for each
of them are combined for overtime and minimum wages
purposes.
•
The focus is on the relationship between the two (or more)
employers.
5
“Horizontal” and “Vertical” Employment
•
Factors relevant when analyzing the degree of association,
and sharing of control by potential horizontal joint
employers:
o Ownership of potential employers
(e.g., does one employer own part
or all of the other; do they have
common owners)
o Overlapping officers, directors,
executives, or managers
o Shared control over operations
(e.g., firing, hiring, payroll)
o Intermingled or related operations
(e.g., one administrative
operation for both employers)
o Whether one potential joint
employer supervises the work of
another
o Sharing supervisory authority
over employees
o Whether the potential joint
employers treat the employees
as a pool available to both
entities
o Sharing clients or customers
o Agreements between the
employers
6
“Horizontal” and “Vertical” Employment
•
Vertical joint employment exists when an employee of one
employer (the “intermediary employer”) is economically
dependent on another employer (the “potential joint
employer”) for work being paid by the intermediary
employer.
•
The focus is on the economic reality of the relationship
between the employee and the potential joint employer,
and whether the employee is dependent on that potential
joint employer.
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“Horizontal” and “Vertical” Employment
•
Factors relevant when analyzing whether the employee is
economically dependent on the potential joint employer
who is benefitting from the work:
o Whether the work performed by the
employee is controlled or
supervised by the potential joint
employer beyond a reasonable
degree of contract performance
oversight
o Whether the potential joint
employer has the power to hire or
fire the employee, modify
employment conditions, or
determine the rate/method of pay
o The degree of permanency and
duration of the relationship of the
parties
o The extent to which the employee’s
work for the potential joint employer
is repetitive and rote, and requires
little training
o Whether the activities performed by
the employee are an integral part of
the potential joint employer’s
business
o Whether the work is performed on
premises owned/controlled by the
potential joint employer
o The extent to which the potential
joint employer performs
administrative functions for the
employee (e.g., payroll)
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The Department of Labor’s July
2015 Guidance
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DMEAST 13840678
July 2015 DOL Guidance
•
In July 2015, the DOL issued Administrator’s Interpretation
No. 2015-1, alerting employers that “most workers are
employees” under the FLSA and reminding employers that the
correct classification of workers has critical implications.
•
The DOL’s guidance states that the misclassification of
employees as independent contractors is becoming more
prevalent in the U.S.
•
The guidance stresses that, when applying the “economic
realities test,” the FLSA’s broad definition of employment must
be considered.
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July 2015 DOL Guidance
•
Employers employ anyone they “suffer or permit to work.”
•
The test focuses on whether the worker is economically
dependent on the business:
o
The nature and degree of control exercised by the company;
o
A worker’s opportunity for profit or loss;
o
A worker’s investment in equipment or materials;
o
The permanence of working relationship;
o
The degree of skill required to perform the work; and
o
The extent to which work is an integral part of company’s business.
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The National Labor Relations
Board
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DMEAST 13840678
The National Labor Relations Board
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Browning-Ferris Industries, 362 NLRB No. 186 (Aug. 28,
2015)
o
In a 3-2 decision, the Board revised the standard for determining
joint employer status.
o
A new two-prong inquiry:

Are both entities employers within the meaning of common law?
and

o
Do they share or codetermine those matters governing the essential
terms and conditions of employment?
Significantly, it no longer matters if the employer actually
exercises direct control over the terms and conditions of
employment – merely possessing the ability to do so is sufficient.
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The National Labor Relations Board
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When determining whether an employer possesses
sufficient control over employees, the Board will look at:
o
Whether an employer has exercised control over terms and
conditions of employment indirectly or through an intermediary
OR
o
Whether it has reserved authority to do so

Thus, it is not necessary that an employer has actually exercised the
authority or control
14
The National Labor Relations Board
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Practical considerations:
o
Assess relationships with vendors to determine the risk of joint
employer determination;
o
Review vendor contracts to ensure that the contracts adequately
describe the relationship and have sufficient indemnification
provisions; and
o
Assess the scope of control (and potential to control) over
temporary workers and workers of business partners, particularly
in the areas of hiring, firing, discipline, and supervision.
15
The National Labor Relations Board
•
In December 2014, the Board’s General Counsel issued complaints
against McDonald’s franchisees and their franchisor, McDonald’s
USA, LLC, as joint employers.
o
The Board alleged that they both violated the rights of employees
working at restaurants around the country in response to “living wage”
demonstrations. Specifically, the Complaint alleged that the unlawful
conduct includes discriminatory discipline, reduction in hours,
discharges, and other coercive conduct directed at employees in
response to union and other protected activity.
•
Proceedings on the complaint are ongoing. A trial, which was
originally scheduled for January 11, 2016, has not yet been held.
•
Given the broad scope of many franchise relationships, success by
the Board on this tactic would significantly expand the Board’s reach
and could fundamentally change business relationships throughout
the country.
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Other Federal Law and Joint
Employment
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DMEAST 13840678
Occupational Safety and Health
Administration
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OSHA’s August 2015 Memo
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In an August 2015 draft internal memo, the Occupational
Safety and Health Administration (OSHA) considered the
question of whether “for purposes of the OSH Act, a joint
employment relationship can be found between the
franchisor (corporate entity) and the franchisee. . . .”
•
The memo notes that the ultimate determination on joint
employment will be based on factual information about the
relationship between the franchisor and the franchisee over
terms and conditions of employment (e.g., direct or
indirect control over working conditions, unexercised
potential to control, or economic realities)
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OSHA’s August 2015 Memo
•
The memo sets forth the following four broad topics and
suggests questions for each to help determine whether a
joint employment relationship exists:
o
The overall relationship between corporate and the franchise;
o
Written documentation of corporate direction and control of the
franchise;
o
Corporate control over the essential terms and conditions of
employment of the workers at the franchise; and
o
Corporate control over safety and health policies and practices at
the franchise.
20
OSHA’s August 2015 Memo
Topic 1: The overall relationship between corporate and the
franchise
•
Examples of suggested questions:
o
How does the franchisee obtain the franchise?
o
What does the franchise submit to corporate?
o
What fee does the franchisee pay to corporate?
o
Does the franchise pay a royalty or other compensation for the
use of the corporate’s trademarks and marketing system?
o
Does the franchise have to agree to certain corporate conditions?
o
What is the interaction with corporate?
21
OSHA’s August 2015 Memo
Topic 2: Written documentation of corporate direction and
control of franchise
•
Examples of suggested questions:
o
Does corporate provide the franchisee handbook?
o
Does corporate provide instructions/policies on the purchase of
materials or food or preparation of materials or food?
o
Does corporate provide instructions/policies regarding employee
orientation?
o
Does corporate provide an employee handbook?
o
Is corporate involved in setting of work hours, pay scales, determining
overtime, leave policies, vacation days, sick leave, or workers’
compensation?
22
OSHA’s August 2015 Memo
Topic 3: Corporate control over the essential terms and
conditions of employment of the workers at the franchise
•
Examples of suggested questions:
o
Does corporate have any involvement in hiring decisions at the
franchise?
o
Are any hiring decisions reviewed by corporate in any way?
o
Does corporate set pay rates or have any involvement in payroll
and payment of wages or workers’ compensation?
o
Does corporate provide franchise with disciplinary rules/policies?
o
Does corporate have any involvement in decisions to terminate
employees at the franchise?
23
OSHA’s August 2015 Memo
Topic 4: Corporate control over safety and health policies and
practices at the franchise
•
Examples of suggested questions:
o
Does corporate provide the franchise with any type of safety program?
o
If the franchise has a safety program, what is the name of the program?
o
Does corporate provide any instruction/information about protective
equipment the franchise should have?
o
Does corporate provide safety training for franchisee managers?
o
Does corporate ask for any injury or illness information from the
franchisee?
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Title VII
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Joint Employment in Title VII Context Clarified
•
On November 18, 2015, the Third Circuit issued its
decision in Faush v. Tuesday Morning, Inc., 808 F.3d 208
(3d Cir. 2015), holding that a temporary worker at a
staffing agency can proceed with discrimination claims
against the agency’s client to which he was assigned.
o
The plaintiff was employed by Labor Ready, a staffing agency,
and assigned to work at the defendant, Tuesday Morning, Inc.
o
Mr. Faush contended that Tuesday Morning employees subjected
him to racially discriminatory comments and terminated his
assignment because of his race.
o
After his termination, he initiated a lawsuit against Tuesday
Morning for violations of Title VII of the Civil Rights Act of
1964 and the Pennsylvania Human Relations Act.
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Joint Employment in Title VII Context Clarified
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The court adopted its test from Nationwide Mut. Ins. Co. v.
Darden, 503 U.S. 318 (1992), which focuses on the “right
to control” and considers the following non-exhaustive list
of relevant factors:
o the skill required; the source of the
instrumentalities and tools
o the location of the work
o the duration of the relationship
between the parties
o whether the hiring party has the right to
assign additional projects to the hired
party
o the extent of the hired party’s
discretion over when and how long to
work; the method of payment
o the hired party’s role in hiring
and paying assistants
o whether the work is part of the
regular business of the hiring
party
o whether the hiring party is in
business
o the provision of employee
benefits
o the tax treatment of the hired
party
27
Joint Employment in Title VII Context Clarified
•
Among other indicia of employment, the court found
compelling that:
o
Although Tuesday Morning paid Labor Ready, not Mr. Faush,
the payments, made in the form of an hourly rate per worker with
overtime obligations, were “functionally indistinguishable” from
direct compensation to the temporary workers;
o
In addition, Tuesday Morning retained sole control over whether
the temporary workers were permitted to work at the store,
although it could not require their termination from Labor Ready;
and
o
Tuesday Morning exercised complete control over the temporary
workers’ day-to-day activities.
28
The Americans with Disabilities Act
29
The Americans with Disabilities Act
•
Under the Americans with Disability Act, two or more entities are joint
employers if they share or co-determine the matters governing the essential
terms and conditions of employment (same as Title VII test).
•
In guidance issued in December 2000, the Equal Employment Opportunity
Commission set forth the following principles:
o
A staffing firm or its client that qualifies as an employer of a staffing
firm worker may be liable for discrimination by another entity if it
participates in or knew or should have know of the discrimination;
o
A staffing firm that does not qualify as a worker’s employer may be
liable for discrimination if it interferes with the worker’s ADA rights or
qualifies as an employment agency; and
o
A client that does not qualify as a staffing firm worker’s employer may
be liable if it interferes with the worker’s ADA rights.
30
The Americans with Disabilities Act
•
Regarding reasonable accommodations, the December 2000
Guidance makes clear that where a staffing firm and its client are
joint employers of a worker with a disability, both are obligated to
provide a reasonable accommodation and engage in the interactive
process.
•
If both the staffing firm and the client can demonstrate that, even if
their resources were combined, the accommodation would involve
significant expense, then both can show undue hardship.
•
Further, one entity may claim undue hardship where providing the
accommodation is solely within the other’s control if it can
demonstrate that it has made good faith, but unsuccessful, efforts to
obtain the other’s cooperation in providing the reasonable
accommodation.
31
The Family and Medical Leave Act
32
The Family and Medical Leave Act
•
The Family and Medical Leave Act (FMLA) is one of the few laws
that explicitly addresses joint employment relationships.
•
The FLSA test applies, and, thus a joint employment relationship will
be considered to exist in situations such as:
o
Where there is an arrangement between employers to share an employee’s
services or to interchange employees;
o
Where one employer acts directly or indirectly in the interest of the other
employer in relation to the employee; or
o
Where the employers are not completely disassociated with respect to the
employee’s employment and may be deemed to share control of the employee
(directly or indirectly) because one employer controls, is controlled by, or is
under joint control with the other employer.
33
The Family and Medical Leave Act
•
Section 825.106 of the FMLA regulations discusses the factors to be
considered in determining how joint employment relationships are treated
under the FMLA.
•
In so doing, it distinguishes between “primary” and “secondary” employers:
o
The “primary” employer has the authority and responsibility to hire and fire
employees, place them and assign their work, make the payroll, and provide
employment benefits.
o
A “primary” employer is responsible to all its employees for giving the notices
required by the FMLA, providing FMLA leave, maintaining health benefits
during FMLA leave, and restoring employees to their same or an equivalent
position of employment at the conclusion of leave.
o
The “secondary employer” (i.e., the client) is responsible for accepting the
employee returning from FMLA leave in place of a replacement employee if the
primary employer chooses to place the employee with the client.
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Legislative Round-up
35
DMEAST 13840678
State Legislation
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Georgia
o
•
The Protecting Georgia Small Business Act (S.B. 277), which
passed the Georgia Senate on February 18, 2016, provides that
franchisees and their workers are not considered employees of
the franchisor “notwithstanding any order issued by the federal
government.” The bill will now go to the Georgia House for a
vote. If enacted, the bill would take effect on January 1, 2017.
Wisconsin
o
On March 1, 2016, Wisconsin Governor Scott Walker approved
legislation (S.B. 422) providing that a franchisor cannot be
considered the employer of a franchisee business unit’s
employees.
36
Federal Legislation
•
Protecting Local Business Opportunity Act (S. 2015, H.R.
3459)
o
On September 9, 2015, Sen. Lamar Alexander (R-TN) and Rep.
John Kline (R-MN) introduced bills which would amend the
National Labor Relations Act to allow two or more employers to
be considered joint employers for purposes of the Act.
o
According to the bills (which are identical), a joint employment
relationship would be established if each employer shares and
exercises control over the essential terms and conditions of
employment and such control over these matters is actual, direct,
and immediate.
37
Potential Immigration
Implications
38
Potential Immigration Implications
•
On December 22, 2015, the U.S. Department of Justice
Office of Special Counsel issued an opinion letter
regarding joint employment discrimination.
•
The letter responded to a question regarding whether an
employer/end-client’s termination of its U.S. workers was
discriminatory when the employer/end-client replaced its
U.S. workers with the contractor’s employees who were in
the country on temporary work visas.
39
Potential Immigration Implications
•
•
The letter provided the following criteria to use in determining
whether discrimination exists under the U.S. immigration laws:
o
Whether there is evidence of intentional discrimination in the selection
of employees for discharge or rehire;
o
The circumstances surrounding the selection of the third-party staffing
contractor; and
o
The extent to which the original employer could be considered a joint
employer of the contract workers.
The letter recognized that the answer to these questions is largely
dependent upon the facts of the case.
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Thank you for joining us!
Shannon D. Farmer
Denise M. Keyser
Ashley L. Wilson
[email protected] [email protected] [email protected]
215.864.8221
856.761.3442
215.864.8364
41