Return to “Direct Control” Standard for Joint Employers
On June 7, 2017, in a return to pre-Obama era standards, the U.S. Department of Labor (DOL) announced the withdrawal of two informal guidance letters impacting the “joint employer” doctrine.
The “joint employer” doctrine determines when one business can be held liable for another employer’s violations of the federal Fair Labor Standards Act (FLSA) and other employment laws. Historically, the DOL said that this doctrine only applies where one company has “direct control” over another company’s workplace. The broader standard created by the 2015 and 2016 guidance letters indicated that a business could be considered a “joint employer” where it exercises sufficient “indirect control” over a worker or where the worker was economically dependent upon the business. The expanded standard disproportionately impacted companies that engaged in certain businesses, including construction work, hospitality and food service, and franchisor/franchisee business models.
The withdrawal of the Obama-era guidance letters returns the DOL to the traditional economic realities test, which is based on “direct control.” This turn of events notwithstanding, the National Labor Relations Board (NLRB) still uses the “indirect control” test, creating risks and uncertainty for many businesses until the NLRB reverses its position.