The internet may be a playground and an encyclopedia, but it’s also a living graveyard. For those of you politically inspired, it’s not too late to join up with Dole-Kemp ‘96. Fans of the X-Files, who still await the next episode, can stay caught up at Inside the X. And anyone still looking to join the Heaven’s Gate cult can check out the group’s webpage here. The site is supposedly maintained by two of the only members who did not commit suicide in 1997, so leadership opportunities may be available.
The NLRB is hopping on the retro train too. Earlier this month, the Board announced its intent to adopt a new rule on joint employment. The new rule would displace the Trump-era regulation, which currently requires direct and substantial control over essential terms and conditions of employment before joint employment can be found.
The NLRB’s Notice of Proposed Rulemaking follows the trail blazed by the Wage and Hour Division (WHD) of the DOL, which in July rescinded the joint employment regulations passed during the Trump Administration. The WHD didn’t make a new rule; it just left a giant crater in the landscape, and now for Fair Labor Standards Act claims, there is no regulation at all.
The NLRB seems intent on adopting its own rule, not just rescinding the current regulation. There’s little doubt as to what the new rule will look like. Expect it to track the Browning-Ferris standard imposed by the Board in 2015. Under Browning-Ferris, when one company has the right to control aspects of the work, joint employment exists — regardless of whether control is actually exerted, and regardless of whether the control is over wages, hours, scheduling or anything else that fits within the meaning of essential terms and conditions.
Expect a substantial expansion in the scope of who a joint employer under the NLRA after the new rule is released. The impacts of joint employment under the NLRA can include being forced into bargaining with workers directly employed by a different company (a subcontractor, for example), being accused of a broader range of unfair labor practices, and being subjected to picketing that would be illegal secondary picketing if there were no joint employment relationship.
Back when Bob Dole was seeking the White House, actual control was required to be a joint employer under the NLRA. Since 2015, the standard has ping-ponged back and forth as the political winds have shifted. We’re about to see another major change sometime in mid-2022. If after the change you find yourself missing the good ol’ days, at least you can still cozy up with your Apple 2E and check out the Dole-Kemp campaign website.
A Syracuse man was rescued from inside the walls of a historic theater last month after spending two days trapped, naked. The man apparently had entered the building’s crawlspace (why?) and fell from the ceiling into a gap between walls in the men’s restroom. No word on why he was au naturale.
But I’m sure he was glad to be freed from this unexpected situation. He should have planned better — like by not hiding in a crawlspace or, if he had a really, really good reason to hide there, by at least wearing clothes.
You can protect your business from unexpected situations (different ones), such as by making sure your staffing agency agreements include valid arbitration clauses with the staffing agency’s workers. The goal here is to avoid being left naked and stuck, if faced with a joint employment claim.
In a recent Oklahoma case, two staffing agency workers sued the staffing agency and the company where they provided services, alleging a failure to pay overtime.
The company where they worked filed a motion to compel arbitration, arguing that the arbitration agreement the workers signed with the staffing agency should cover all claims against both defendants. The district court initially ruled that the arbitration agreement was only between the worker and the staffing agency, and so it could not be relied upon by the other company. Motion denied.
But the Tenth Circuit disagreed, finding that the non-signatory company could enforce the agreement because the plaintiffs’ claims “allege substantially interdependent and concerted misconduct” against the two defendants. The plaintiffs were therefore “estopped from avoiding their duty to arbitrate their claims arising out of their employment relationship.”
That was good news in this case, but I wouldn’t count on that result every time. This case turned on Oklahoma estoppel law. But with proper planning, you can achieve the same result.
First, in your agreement with staffing agencies, require the agencies to have all individuals assigned to perform services at your company sign an individual arbitration agreement.
Second, make sure it’s not just any old arbitration agreement, but one that includes customized terms. For example:
Require the worker to acknowledge that signing is a condition to being placed at your company.
Make sure the scope of covered claims is broad enough to include claims that are not just against the staffing agency.
List your company as a third party beneficiary with authority to enforce the agreement.
Make the obligation to arbitrate bilateral and binding on your company, even though your company will not sign the agreement. In other words, if you agree to perform services at the company, the company will agree to arbitrate any claims against you.
There are a few more tricks of the trade, but these are some of the key items. Keep the agreement short, and use simple language.
With some careful advance planning, you can avoid being left naked and stuck if faced with a joint employment lawsuit filed by staffing agency workers.
Suppose Kermit works 30 hours a week at The Muppet Show. He holds a non-exempt position as a research assistant, trying to determine why are there so many songs about rainbows.
Frog food is expensive these days, so he holds a second job too. Kermit works nights at Sesame Street, where he spends 20 hours a week investigating multi-colored arc-shaped atmospheric phenomena and what’s on the other side.
With 30 hours at one job and 20 hours at another, neither role pays Kermit overtime.
But is he being cheated out of time-and-a-half? Let’s hop in and take a deeper look.
Horizontal joint employment is when a person holds two jobs, but the businesses are under common control. They may have the same owners or officers, they may coordinate schedules among workers, or they may share a common pool of employees. When horizontal joint employment exists, the hours from both jobs are aggregated, and 30 hours at one job plus 20 hours at the other equals 50 total hours, 10 of which require overtime pay.
So what about our short-bodied, tailless amphibian friend? Does Kermie get overtime?
Kermit may seem like a free spirit, but whether he’s on The Muppet Show (30 hours) or Sesame Street (20 hours), his every move is controlled by Jim Henson. Literally.
Common control signals horizontal joint employment, which means Kermit’s been shortchanged 10 hours of overtime. It’s not easy being green.
You’ve probably read about recent changes to the joint employment tests, but those changes are for vertical joint employment, not horizontal joint employment. Vertical joint employment is when the employees of a primary employer perform services for the benefit of a secondary employer, like in a staffing agency relationship. When staffing agency employees work side-by-side with a company’s regular employees, the staffing agency and the other business may be joint employers.
The rules on horizontal joint employment are unchanged. So if sharing employees with a business under common control, be aware of the rules and look before you leap.
Sometimes it seems as if you just can’t win. Take the case of this man in southern Brazil, who late last month was attacked by a group of bees while fishing with two friends. The man successfully escaped the bees by jumping into the lake — only to be eaten alive by piranhas.
Employers in California, you know what I mean, right? It seems like any way you turn, the laws of California will get you.
Well today I write with good news. There is still hope.
In a joint employment case brought under California law, the Ninth Circuit Court of Appeals handed Costco a win, ruling that Costco is not a joint employer of the supplier sales reps who ask you to taste that new brand of salsa, even under the strict rules of California Labor Code section 2810.3.
California has two flavors of joint employment: Spicy and Extra Spicy.
Extra spicy is Labor Code section 2810.3. It makes joint employment automatic when a “labor contractor” supplies workers to provides services within the client’s “usual course of business.” The workers at issue here were paid by a staffing agency and sent to Costco locations to offer samples of suppliers’ products on a consignment basis. The Court of Appeals ruled that was not part of the “usual course” of Costco’s business, so section 2810.3 did not apply.
Regular spicy is the Martinez v. Combs test. It says that an entity is a joint employer under California law if it (1) exercises control over wages, hours, or working conditions, or (2) “suffers or permits” the individual to work, or (3) “engages” the individual, meaning creates a common law employment relationship, not that you should have put a ring on it.
The Court gave Costco a pass here too, ruling that it didn’t do any of these three things either.
This case is a good reminder that it’s still possible for a companies to win joint employment claims in California. The key is to structure those relationships correctly and ensure you have robust contracts with suppliers of labor. For contracting tips, remember the Monster with Three Eyes.
All is not lost, even in California. Turns out that even the guy in Brazil might have had a chance. His two fishing buddies made it out of the lake alive.
I had a great intro all ready for this week. I really did. WXYZ.com reported last week that Monica, a Detroit woman, took home a free puppy, only to learn days later that it was not a puppy at all, but a hyena.
I was about to share this great piece of investigative journalism with you when I was hit with this surprise: The woman’s story is now in doubt, and WXYZ has retracted the story. Thanks to the Wayback Machine, you can read the original story here and (to my great disappointment, because I so badly wanted this to be true) the retraction here.
Sometimes we are given something that seems wonderful — say, a puppy, or even a fun story about a woman who mistook a hyena for a puppy — but then it gets taken away. For all of you who were pleased with any NLRB pro-business decisions over the past four years, get ready to see those taken away too.
Last week new NLRB General Counsel Jennifer Abruzzo issued a Memo listing roughly 40 decisions and principles that she’d like to undo. She has a more diplomatic way of saying it — let’s just say we’ll “carefully examine” these. But expect many of these principles to be toast, now that the Board features a 3-2 Democratic majority.
You can see the full list here, but I’ll focus on three:
(1) “Cases involving the applicability of SuperShuttle DFW,” a case that made it easier to be classified as an independent contractor. You can read my post about SuperShuttlehere.
(2) “Cases involving the applicability of Velox Express,” a case in which the NLRB ruled that independent contractor misclassification, by itself, is not an automatic unfair labor practice. You can read my post about Velox Express here.
(3) “Cases involving the applicability of UPMC,” which relates to the standard for the Board to accept settlements voluntarily entered into by the parties. What she’s really talking about here is the McDonald’s franchise joint employer case, in which her predecessor as NLRB General Counsel settled a case against McDonald’s that she (and an Administrative Law Judge) didn’t think should have been settled. The NLRB eventually approved the settlement. Here is an amicus brief I wrote for the Restaurant Law Center in that case, arguing that the settlement should be approved.
The General Counsel for the NLRB is the equivalent of its chief prosecutor. These are Abruzzo’s priorities. With a sympathetic 3-2 majority on the Board, you can be sure that many of these desired changes will take place.
Like a good hyena story, the pro-business Board decisions from the last four years aren’t likely to last.
No visit to Turkmenistan would be complete without a visit to the Darvaza Crater, more commonly known as the Door to Hell. This massive crater formed decades ago after a Soviet drilling rig collapsed. Roughly 40 years ago, the Soviets lit the crater on fire to burn off the methane. But Turkmenistan has some of the largest gas reserves in the world, which meant you couldn’t just make the gas go away.
The fire still burns today, and the massive fiery hole is an impressive sight.
A massive hole can also describe what the Wage and Hour Division (“WHD”) just created.
On July 29, the WHD formally announced the rescission of all of the regulations that define when joint employment exists under the Fair Labor Standards Act (“FLSA”).
The regulations, which can be found in Part 791 of 29 C.F.R., have existed in some form since 1958, which is right around the tenth anniversary of a magnitude 7.3 earthquake that killed up to 10% of the entire population of Turkmenistan.
In 2020, the Trump Administration revised the regulations to provide more clarity about who is a joint employer and when. The 2020 regulations listed specific factors that should be applied. The new rule sought to create consistency in place of the patchwork of different factors used by different courts in different circuits. The 2020 regulations also included 11 helpful illustrations of how the new rules would be applied in various situations.
Pro-business groups liked the new rule because it provided clarity and made it harder to be a joint employer. Pro-employee groups hated the rule because it provided clarity and made it harder to be a joint employer.
In March 2021, the Biden Administration announced an intent to rescind the 2020 regulations. On July 29, the rescission was formally announced. The rescission takes effect September 28, 2021.
In the formal rescission notice, the WHD notes that few courts had followed the new test and that a federal district court in New York had ruled that the 2020 regulations were invalid. (That case is now on appeal to the Second Circuit.)
What does the rescission mean?
Welcome to Turkmenistan! The rescission doesn’t reinstitute the 1958 regulations. It doesn’t provide new regulations. Instead, it strikes all of Part 791 and leaves an empty hole.
The new guidance is that there is no guidance.
No kidding. Here’s what the notice says:
Effect of Rescission
Because this final rule adopts and finalizes the rescission of the Joint Employer Rule, part 791 is removed in its entirety and reserved. As stated in the NPRM, the Department will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or subregulatory guidance is appropriate.
The WHD notice reminds us that courts have set forth their own tests, and those tests can be followed.
So where does that leave us? What’s the rule? Well, it depends where you live. Really! Different courts apply different tests. But for the most part, they are similar.
In general, there are two types of joint employment – vertical and horizontal.
Vertical joint employment is when one employer, such as a staffing agency, provides workers for the benefit of a second entity. Joint employment under the FLSA means that both entities are legally responsible for ensuring that the workers are properly paid a minimum wage and overtime. Both are also jointly liable for any FLSA violations, even though the staffing agency likely has full control over payroll.
Based on court decisions, vertical joint employment will follow an Economic Realities Test, and joint employment will exist when “the economic realities show that the employee is economically dependent on, and thus employed by the other employer.” Multiple factors go into this analysis. These typically include:
Right to direct, control and supervise work;
Right to control employment conditions;
Permanency and duration of relationship;
Repetitive or rote nature of the work;
Whether the work is integral to the business;
Whether the work is performed on premises; and
Which entity performs the administrative functions characteristic of an employer (payroll, workers compensation, etc.)
Different courts articulate the test in different ways, but that’s a reasonable summary of the factors most commonly applied.
Any new interpretive guidance from the Biden WHD is almost certainly going to be that joint employment should be widespread and easy to establish.
Horizontal joint employment is when two businesses under common control employ the same individual. This issue arises when a worker spends 30 hours at Business 1 and 30 hours at Business 2. If the businesses are joint employers, then the worker is entitled to 20 hours of overtime for the combined 60 hours of work.
The 2020 regulations did not materially change the test for horizontal joint employment. The 1958 version of the regulations looked at whether the two entities were “completely disassociated” from each other. Courts typically look at common control and common management as evidence of horizontal joint employment. That is not likely to change, but that regulation’s gone too.
Will There Be New Regulations?
Maybe. It seems more likely to me that we’ll see a re-issuance of the 2016 Administrator’s Interpretation on Joint Employment. The 2016 AI adopted an expansive view of joint employment, finding that it’s fairly easy to establish. The 2016 AI was issued by David Weil, who ran the WHD under Obama. President Biden has nominated Weil to head the WHD in the current administration, so it would not be a surprise to see the 2016 AI or something similar re-issued.
Businesses should expect an expansive definition of joint employment, with little guidance or help from the WHD. With all regulations gone, and with different courts applying different tests, the landscape on joint employment resembles a massive crater filled with burning methane. It’s not a hospitable climate.
What Should Businesses Do?
Businesses should review their arrangements with vendors who provide labor and revisit those contracts and relationships. Steps can be taken to provide contractual protection against joint employment, even where the law will find a joint employment relationship.
This month I have been focused on summer clean up. We moved back into our house after six months of unintentional reconstruction, thanks to failed plumbing supply line on the second floor that created an impromptu shower and bath throughout the first floor of our house. Welcome home from vacation, late December 2020.
But now I’m back and getting organized. Cleaning house. Moving forward.
Late summer can also be a good time to clean house and eliminate unnecessary legal risks. With the White House about to release a new rule on joint employment, now is the time to review your staffing agency agreements.
You’ll want to check for these three things:
The Monster with Three Eyes. You need these three components to protect against joint employment claims, no matter what test applies.
A clause like this one, to allow you to remove unwanted workers without exerting the type of control that would make you their employer.
Awareness of FMLA risks. Know what to watch with temps-to-hire, and don’t forget about this often-overlooked rule.
While cleaning out the garage Saturday, I heard the Cars’ song “Magic,” which contains this nifty lyric: “Summer, It’s like a merry go round.” I then went down the rabbit hole of looking for the video, which features a collection of bizzaro characters at Rik Ocasek’s freakish pool party, including this probable leader of a religious cult.
The lyric stood out, though, because this summer is like a merry go round for joint employment. The rules are about to change again to make it much easier to establish joint employment under the FLSA.
I’ll keep this post short for two reasons:
It’s beautiful outside and so I should not be inside on my laptop, and
The real news on joint employment is coming sometime this week, but it’s not out yet as of Sunday midday when I am writing this.
Here’s what we know:
In March 2021, the Biden Administration indicated it would be rescinding the Trump joint employer rule, which made it hard to establish joint employment.
Last week, the White House announced that it had concluded its review of the new joint employer rule, which will be published imminently.
After it’s released, I’ll write more about it, quite possibly with another screenshot from a Cars video. Or “You Might Think I’ll screenshot another video. Maybe not. Like you, I am on the edge of my seat. But unlike you, that’s because I’m getting up to go outside. I’ll post more when we see the final rule.
Did you know that Monaco’s flag looks the same as the flag of Indonesia? The differences are subtle. The Indonesian flag is wider, with a width-to-length ratio of 2:3, compared to Monaco’s 4:5; and Monaco flies a slightly darker shade of red. The flag above is Monaco’s. Fans of Indonesia, don’t be fooled by that pushy sales clerk at the flag store.
Now take your screen and flip it 180 degrees. That’s the flag of Poland. Its proportions are 5:8.
Sometimes, things look the same, even when they’re not. True with flags. Also true with “contract workers.”
When a client starts talking about its “contract workers,” the first thing I want to know is what they mean. Are you talking about 1099 independent contractors? Staffing agency workers employed by a staffing agency? Or your own W2 employees with contracts to work for specific period of time?
Each is as different as Monaco and Indonesia.
If discussing 1099 independent contractors, we’re talking about workers that no one is treating as an employee. The legal risk here is independent contractor misclassification. In other words, are laws being broken by not treating these workers as employees?
If discussing staffing agency workers, we’re talking about someone else’s W2 employees. The issue here is not whether these workers are anyone’s employees. We already know they’re the staffing agency’s employees. The legal issue here is whether these workers are joint employees. In other words, are they employees of both the staffing agency and your company?
If discussing your own W2 employees with contracts for a definite period, we’re probably discussing contract terms and we’ll probably need to see the contract. These are employees but not employees at-will.
The flags of Monaco and Indonesia may look the same, but the countries and their laws are very different. Same thing here. These three types of “contract workers” are as different as a European principality with a population of less than 40,000 and a Southeast Asian chain of islands with a population larger than every country on earth except China, India, and the United States.
Yes, Indonesia really does have the world’s fourth largest population. Fun fact! (And one of the world’s most common flags, tied with Monaco and Poland, as you now know.)
If you’re asked about “contract workers,” be sure you know what you’re being asked about. Any of these three types of worker can be called “contract workers,” but they’re very different, and the legal issues involved are very different too.
Crash Test Dummies is a band from Winnipeg that I really like — especially the 1993 album, God Shuffled His Feet. It’s full of thoughtful questions asked in a booming deep voice. The song In the Days of the Caveman takes a look back, with some keen observations added for good measure:
In the days of the caveman And mammoths and glaciers Bugs and trees were your food then No pajamas or doctors
See, that’s all true and probably not something you had thought about before.
President Biden has given us another reason to look back and reconsider some things you hadn’t thought about in a while. Last week, Biden nominated David Weil to serve as Wage and Hour Administrator. Weil served in the same role under Obama, so we’ve seen that movie too.
Here are some highlights from Weil’s last stint as W&H Administrator:
Administrator’s Interpretation 2016-1: Joint Employment under the FLSA, which I wrote about here when it was issued. Weil embraces the broadest possible view of joint employment. The Trump Administration’s DOL rescinded this guidance in 2017.
Administrator’s Interpretation 2015-1: Applying the FLSA’s “Suffer or Permit” Standard to Independent Contractor Classification, which I wrote about here. Weil advocates an expansive view of employment, declaring that “most workers are employees under the FLSA’s board definitions.”
Here’s what we can expect from Weil 2.0:
Increased enforcement activity by the DOL against companies using independent contractors.
Right now, claims generally arise through lawsuits, and class/collective actions present the most danger. The risk of class claims can be limited with arbitration agreements and class waivers. But arbitration agreements provide no defense against a DOL action. Those agreements don’t bind the government. Expect the DOL to go after companies that make extensive use of independent contractors.
Increased enforcement activity by the DOL on joint employment claims.
Remember, unlike independent contractor misclassification, joint employment is not illegal. Joint employment is a problem when a primary employer (such as a staffing agency or vendor/subcontractor) fails to comply with some aspect of the FLSA and its wage payment rules. Under a broad theory of joint employment, the company benefitting from the services is going to be liable for the errors of the primary employer, even though the alleged joint employer had no control over the primary employer’s wage practices.
New regulations on independent contractor classification and joint employment.
The standards and test keep changing, depending on who holds the White House. One step the Wage and Hour Division can take to try to make its views more permanent is to adopt its views as formal regulations, not just Administrator’s Interpretations. This is what the Trump DOL tried to do for both independent contractor misclassification and joint employment. Expect a strong push by the DOL to adopt new regulations that make it harder to maintain independent contractor status and easier to find joint employment.
The bottom line is that we’re going back in time. Maybe not so far back that bugs and trees were your food then, but back to 2015 and 2016 interpretations of the FLSA. Expect no pajamas or doctors.
What to do about it? Businesses that rely on independent contractors should tighten their agreements now. Businesses that engage staffing agencies should review those contracts now.