On the heels of the National Labor Relations Board’s landmark decision in Browning Ferris Industries, which found that under the National Labor Relations Act a company and its contractor can be seen as a joint employer even where the company does not exert any control over employees’ terms and conditions of employment, the Department of Labor (DOL), Wage and Hour Division this week released new guidelines for when companies may be considered joint employers under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) and thus jointly liable for any wage and hour law violations. While the guidance is non-binding, it serves to clarify the DOL’s position when investigating possible joint employer relationships and can play a significant role in future class action litigation under the FLSA and the MSPA.

The DOL states that the concept of joint employment should be defined expansively under the FLSA and MSPA, and it points to the definition of “employ” in both statutes-“to suffer or permit to work”-as ensuring that the scope of the employment and joint employment relationships under the FLSA and MSPA is as broad as possible. The guidance continues by describing a wide variety of organizational and staffing models that the DOL finds to be either horizontal or vertical examples of joint employment.  Horizontal joint employment exists where an employee is employed by two or more technically separate but related or overlapping employers.  For example, two separate nursing homes that employ a registered nurse who splits her time during the week between the two are horizontal joint employers if they share overlapping operations such as the same majority owner, same payroll system and coordinated scheduling of shared employees.  Vertical joint employment exists where the work of an employee of an intermediary employer is performed for the benefit of another employer.  For example, a janitorial worker who is employed by one company which has contracted or arranged for the janitorial worker to perform services for another company.

The DOL states that it may consider joint employment to achieve statutory coverage, financial recovery, future compliance and to hold all responsible parties accountable for their legal obligations. Thus, where the DOL finds joint employment it will not shy away from pursuing the larger more established employer in order to achieve these goals.  This position serves as a warning to any large businesses that regularly contract or hire other businesses that the DOL will hold them responsible for labor violations in a much broader way than it has in the past.  It is also a warning to smaller service or staffing businesses which normally do not fall under the purview of the FLSA that they may now be covered by the FLSA and jointly liable for any violations if found to be a joint employer with a larger business.

In light of this new DOL guidance, it is recommended that businesses review their employment practices as well as those of all contractors to ensure best practices are being followed and compliance with all labor laws. Prior to entering into a relationship with any contractor businesses should make sure that the contractor does not have a number of prior or current labor violations.  It is also recommended that businesses include an indemnification clause in all contracts with contractors so that the business can sue the contractor for back wages should the DOL fine the business as a joint employer.