The federal Department of Labor (DOL) recently announced a four-factor test for determining joint employer liability in various employment scenarios under the Fair Labor and Standards Act (FLSA). This is the first major revision to the FLSA about joint employer determinations since it was promulgated in 1958.
In addition, the Dynamex decision and AB5 have thrown some uncertainty as to whether the ABC Test now applies to determining a joint employer relationship for purposes of California labor laws rather than the previously used Martinez test.
Federal Joint Employer Analysis:
Under the DOL’s rule, there are four factors that should be examined to weigh whether a joint employment relationship exists. They include whether the putative employer:
1. Can hire or fire 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
Maintains the employee’s work records.
No single factor is dispositive in determining joint employer status, and the appropriate weight to give each factor will vary depending on the circumstance. The DOL’s new guidance maintains the four factor test for most situations, but says that other factors may also be considered if the potential joint employer exercises significant control over the terms and conditions of employment.
The DOL specifically stated that factors “that assess the employee’s economic dependence are not relevant to determining whether the worker has a joint employer. “ While these factors may be applicable for differentiating between employees and independent contractors, they do not apply when determining a joint employer relationship. Such factors include: Whether the employee is in a specialty job or a job that otherwise requires special skill, initiative, judgment, or foresight; whether the employee has the opportunity for profit or loss based on his or her managerial skill; whether the employee invests in equipment or materials required for work or the employment of helpers; and the number of contractual relationships, other than with the employer, that the potential joint employer has entered into to receive similar services.
The final rule also identifies several common business models and contractual relationships that have been targeted as joint employer relationships in litigation, specifically stating that these relationships on their face do not make a joint employment relationship any more or less likely under the FLSA. These include franchise model and contractual terms that require one of the parties to follow certain practices. The DOL’s approach is pro-business and was aimed to allow parties to make business decisions and enter into business relationships with more certainty and clarity regarding what actions will result in joint liability under the FLSA.
The National Labor Relations Board is also working to update its own rules for joint employment situations which are due out shortly and are expected to be in line with the rule published by the DOL.
California Joint Employer Analysis:
If California law applies to the employees at issue the potential applicable tests are quite a bit more pro-labor, and uncertain, than the above federal standards.
At least one Ninth Circuit Federal Court of Appeals decision has applied the ABC Test to a joint employer situation due to the Dynamex decision and the passage of AB5. However, this decision is no longer precedential as the Ninth Circuit has since withdrawn its opinion.
The most recent California Court of Appeal decision on this issue refused to expand the use of the ABC Test to the joint employer liability analysis. The Court explained that the policy concerns in Dynamex and AB5 are not present in wage and hour claims arising under a joint employer theory of liability. In a joint employer claim, the worker is an admitted employee of a primary employer, and is subject to the protection of applicable labor laws and wage orders. The only question is whether another business or entity has some relationship with the primary employer which would confer liability for violations of the obligations imposed by the wage orders.
The court applied the traditional Martinez test to determine liability rather than the ABC Test. Under the Martinez test, courts analyze three alternative definitions of what it means to “employ.” To employ means: (a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, or (c) to engage.
While California courts will generally look to all three of the above tests when determining whether joint employer liability exists, it is important to note that when analyzing the joint employer issue under the third test, “to engage,” courts look to the common law definition of any employment relationship. As such, courts will specifically look to some of the factors that the DOL has determined are not applicable in analyzing joint employer situations under the federal FLSA (i.e. the factors “that assess the employee’s economic dependence are not relevant to determining whether the worker has a joint employer.”). Thus, courts in California will continue to consider factors that the DOL has deemed inapplicable under federal law.
Analyzing whether your company could be considered a joint employer differs depending on whether federal or California law applies and is highly complex and ever evolving. Should you require assistance and advice as to potential joint employer liability please contact the experts at RPNA at (818) 992-9999.