Strategic Choices Remain Despite Proposed Joint Employer Rule

The patchwork of joint employer rules that remains under federal and state law despite the U.S. Department of Labor’s (DOL’s) recent proposed joint employer rule requires strategic choices by HR. While the DOL’s rule proposed a unified joint employer standard under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA), the National Labor Relations Board (NLRB), the U.S. Equal Employment Opportunity Commission (EEOC), and many state agencies all have different joint employer standards.

‘Patchwork Quilt’ Compliance Problem

Even if the DOL’s proposed rule is finalized, HR will still face a “patchwork quilt” compliance problem, said Marissa Mastroianni, an attorney with Cole Schotz in the New York City metropolitan area. 

A company could be a joint employer under applicable state law but not under the DOL’s standard or vice versa, she noted. In addition, federal courts in different circuits may continue to apply their own established tests, because after the U.S. Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo, courts are not bound to follow the DOL’s regulatory interpretations, she added.

“Avoiding a finding of joint employment when considering the various sources of potential liability is a headache,” said Noah Finkel, an attorney with Seyfarth in Chicago. “Employers, in consultation with their lawyers and HR professionals, need to determine which of those sources poses their most significant risk and structure their relationships with other companies based on that source’s definition.”

For some companies and in some contexts, avoiding a joint employment finding under the NLRB’s test for collective bargaining is going to be the most important consideration, he said.

For many, avoiding a class or collective action for overtime pay and penalties due to another company’s pay practices will be paramount, Finkel noted.

“Other companies may desire a lowest-common-denominator approach in which they structure how they interact with a potential joint employer so that they can minimize their risk of a joint employment finding under all employment statutes by considering the broadest test of joint employment,” he said.

Different Standards

The DOL’s proposed rule does provide more clarity. If finalized, it would give HR a more predictable framework for evaluating whether their company might be considered a joint employer under the FLSA, the FMLA, and MSPA, Mastroianni said. 

The proposed rule excludes certain common business practices from the joint employment analysis, including operating as a franchisor, requiring compliance with health and safety standards, providing sample employee handbooks, offering association health or retirement plans, imposing quality control standards to protect brand consistency, and jointly participating in apprenticeship programs, she explained. 

“That’s a big deal practically, because it means HR teams can maintain brand standards and share compliance resources with some protections against inadvertently triggering joint employer liability,” Mastroianni said.

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