Health care employers should be cognizant of regulators’ continuing focus on joint employment issues, from the increasingly common scenario in which businesses rely on staffing agencies to supplement their workforce, to situations in which businesses use a common pool of workers. Late last year, we highlighted the NLRB’s new test for establishing joint-employer status under the National Labor Relations Act (“NLRA”), which affects staffing arrangements and third-party service contracts commonly used in the health care industry by broadening the test for joint employment. On January 20, 2016, the DOL’s Wage and Hour Division issued its Administrator’s Interpretation No. 2016-1 (“AI”), which warns that the DOL will closely monitor employers’ compliance with the Fair Labor Standards Act (“FLSA”) and Seasonal Agricultural Worker Protection Act (“MSPA”).

The DOL identifies two types of joint employment: horizontal joint employment and vertical joint employment, both of which are common arrangements within the health care industry. Horizontal joint employment occurs when a worker has employment relationships with two entities that are sufficiently affiliated such that they jointly employ the worker. Vertical joint employment exists when an employee of one company is, with respect to the work for that company, also economically dependent on another company.

The AI’s Impact on the Health Care Industry

Health care employers have long known that they might be considered joint employers with their temporary workers provided by health care staffing agencies. Over 15 years ago, the Equal Employment Opportunity Commission (“EEOC”) advised health care providers that, for purposes of liability under the Americans with Disabilities Act, they may be considered a joint employer of temporary nurses or other workers hired through a staffing firm.

In 2008, the U.S. Court of Appeals for the Second Circuit incorporated this concept of joint employment into the wage and hour sphere. In Barfield v. N.Y. City Health & Hosps. Corp., health care employers were put on notice that they could be considered joint employers when using staffing agencies to provide workers who are economically dependent on the hospital.^[1]

The employment relationship at issue in Barfield is cited by the AI as an example of vertical joint employment, which is exemplified by the use of staffing agencies and other third parties to supplement a company’s workforce. Vertical employment focuses on whether the worker, who is placed at a company or hospital by a staffing agency with which the company or hospital has contracted for services, can be considered an employee of both the staffing agency and the company or hospital. Health care employers using contracted workforces must ensure that these workers are properly classified according to the economic reality of their position within the company or risk the negative consequences of a DOL audit.

Employers in the health care industry must also consider the classification of a worker who provides services for more than one company where the companies are sufficiently related so as to be considered a joint employer. To highlight this scenario—known as “horizontal joint employment”—the AI provides the example of a nurse who works for two hospitals that are considered joint employers. In that situation, both hospitals are jointly and severally liable for compliance with the FLSA, including paying overtime compensation for all hours worked over 40 during the workweek, even if the nurse works fewer than 40 hours per week for each hospital separately.

The DOL unambiguously interprets the test for joint employment under the FLSA more broadly than the test under the NLRA and other labor statutes. The DOL’s position on joint employment, however, likely will have consequences that extend beyond the FLSA.^[2]

The AI further makes clear that the DOL will analyze potential joint employment under both the vertical and horizontal axes; in so doing, joint employment will be easier to find. The AI explicitly cautions that its new approach to joint employment will allow it to collect back wages from a larger “deep pocket” entity, which will now be considered the joint employer with a smaller entity.

How Should Health Care Employers Respond to the AI?

Employers should take preventative measures to stay ahead of the DOL. Employers utilizing contracted workforces should make sure to have in place written agreements that address the DOL’s definition of “joint employment” and, where possible, contain provisions that define a true independent contractor relationship.

Employers—especially those in the process of joining or merging with a network, or who are entering a business relationship with a substantially smaller entity—also are advised to conduct an audit to ensure compliance with the broadened definition of “joint employment.” As joint employers are joint and severally liable for compliance with the FLSA (and subject to a longer statute of limitations period when the misclassification is “willful”), it is imperative that health care companies properly classify employees and properly document independent contractors.

^{[1] Barfield v. N.Y. City Health & Hosps. Corp., 537 F.3d 132, 143-49 (2d Cir. 2008).}

^{[2] For a discussion of the impact of this AI on H-1B dependent employers, please see our colleague Jang Im’s recent article, “Steps for Avoiding Unexpected Joint Employment Liability,” Law360 (Feb. 16, 2016).}