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Classifying Joint Employment As Either: Horizontal Joint Employment Or Vertical Joint Employment

Posted by Jeffrey Forbes on Apr 1, 2016 9:00:00 AM

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Continuing a trend from the National Labor Relations Board and several state courts, the US Labor Department issued new guidance regarding joint employer liability on Wednesday, January 20, 2016.  Companies face a number of exposures as it relates to the status of employees: these can range from unionization regulations as controlled by the NLRB, to minimum wage and overtime laws controlled by the US Department of Labor under the Fair Labor Standards Act, and even including discrimination claims under the Civil Rights Act often litigated in court.  Rules for who constitutes an employee can differ significantly depending on the employee rights sought.  The US Labor Department often uses a more expansive definition of employee than the National Labor Relations Board or the Occupational Safety and Health Administration, for example.
Read More About The Growing Liability Of Joint Employment Here

The expansions in joint employer liability are an intentional attempt to address concerns about the effect of subcontractor relationships on staffing agencies on employment relationships.  Labor advocates have expressed concerns about the ways in which these relationships can damage the rights of workers.  By expanding joint employer liability, regulators and courts are attempting to ensure certain statutory protections remain in full force.  The Administrator for the US Labor Department specifically highlighted that larger, more established companies have a greater ability to ensure compliance with labor laws when joint employment exists.

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The guidance issued by the Administrator classifies joint employment into two categories: horizontal joint employment and vertical joint employment.  Horizontal joint employment involves two closely related companies and the analysis proposed by the Administrator primarily focuses on the relationship between the companies to determine whether joint employment exists.  Vertical joint employment normally involves the use of subcontractors or staffing agencies and the test for determining joint employment will look to the economic realities of the relationship between the employee and the putative joint employer.

Horizontal joint employment

In this case, a joint employee often has an acknowledged employment relationship with both employers, working separate job hours with separate responsibilities at each employer.  The US Department of Labor can enforce joint employment in this situation when the management and/or ownership of the joint employers overlap sufficiently.  Joint employer liability can matter sufficiently in these relationships because it directly affects the employee’s right to overtime pay.  If an employee works 25 hours a week each for two completely separate employers, neither employer has an obligation to pay her overtime.  However, if the two employers are found to be joint employers, the employee would be entitled to ten hours of overtime pay.

Vertical joint employment

Focuses on the use of intermediary companies who provide employees to (generally) larger companies with employment vacancies.  The number of these types of arrangements is comparatively vast and the determination of joint employment is highly fact-specific.  The Fair Labor Standards Act uses an economic realities test to determine joint employment in vertical arrangements.  This differs significantly from the control test used under most other branches of employment law.  Specifically, the FLSA test looks to determine economic dependence on the putative joint employer by looking at seven factors:

  • Directing, controlling, or supervising the work performed
  • Controlling employment conditions
  • Permanency and duration of the relationship
  • Repetitive and rote nature of work
  • Integral to business
  • Work performed on premises
  • Performing administrative functions normally performed by employees

 

Ultimately, the “guidance” issued by the US Labor Department Administrator does not have a binding legal effect.  It will however have a strong effect on the actions of labor department regulators and their actions moving forward.  Companies need to be aware of this shifting legal landscape to control their exposure and make sure they are meeting their legal obligations to all employees.

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Topics: For Your Business, Employee Benefits, HR Insights, Joint Employer, Laws for Employers, Browning-Ferris