The DOL, Vertical Joint Employment and You-and Why You Should Care About It…

We’re back with the US Department of Labor’s Administrative Interpretation  on joint employment under the FLSA. We learned last week about horizontal joint employment. (Click here for a more complete review, and here for the overview/introductory post. ) What if you’re not a horizontal joint employer? Well, the DOL says there’s another way you could be a joint employer, and thereby be jointly liable under the FLSA. You might be a vertical joint employer. (Direction seems to be an important theme here.)  What’s that? I’m so glad you asked, because that’s our topic for the week — after the jump, of course!

(Image from matrix-radar.com)

When the employee of one employer (referred to in the Administrative Interpretation as an “intermediary employer”) is also, with regard to the work s/he performs, economically dependent on another employer (aka in the AI as the “potential joint employer”) a vertical joint employment relationship may exist. One company contracts for workers directly employed by another company.  The most common examples include a construction worker, who works for a subcontractor that in turn provides services/employees to a general contractor, or a company that contracts with a staffing agency to provide contingent workers. Horizontal joint employment examines the relationship between the potential employers; vertical joint employment focuses on the economic realities of the relationship between the employee and the potential joint employer.

So we know that with vertical joint employment there is an admitted relationship between the employee and the intermediary employer. We know that the potential joint employer (aka the “other employer”) has contracted with the intermediary employer to provide it with labor and/or perform certain employer functions such as hiring or payroll – or both-and the employee works for the benefit of that employer.

Here are some other actual case examples from the DOL’s AI:

• A garment manufacturer engages a contractor that directly employs and provide garment manufacturer with garment workers. See Zheng v. Liberty Apparel Co., 355 F.3d 61, 71-72 (2d Cir. 2003);
• A staffing agency places nurses at a hospital. See Barfield v. N.Y. City Health & Hosps. Corp., 537 F.3d 132, 143-49 (2d Cir. 2008);
• Warehouse workers, whose labor is arranged and overseen by layers of intermediaries between the employees and the owner or operator of a warehouse facility. See Carillo v Schneider Logistics Trans-Loading & Distrib., Inc., 2014 WL 183956, at *9-15 (C.D. Cal. Jan. 14, 2014).

See a pattern?  A company contracting with another company for labor, is likely a vertical joint employer. (Note that when an intermediary employer who is also employed by the potential joint employer, all intermediary employer’s employees are also the potential joint employer’s employees, and no vertical joint employment analysis is necessary.)

OK, I can hear you asking: But you still haven’t told me how I determine the economic realities of the relationship between my company and the employees. Aww, you care. OK, I’ll tell you. The DOL’s AI says you should look at the 7 factors listed in the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).  You’ll see that while control is important, the inquiry does not end there. Also, the factors should not be applied in a mechanical fashion, and remember, the idea is to define joint employment expansively. (Hey that’s what the AI says. I didn’t make this up.) OK, here are the 7 factors:

1. Direction, control or supervision of work performed, beyond reasonable degree of contract performance oversight. Such control can be indirect, and need not be more than or even as much control as the intermediary employer, as long as it’s enough to indicate economic dependence by the employee.
2. Control over employment conditions (e.g. hiring, firing, modifying employment conditions, determining pay rates), which can be indirect and need not be exclusive.
3. Permanency and duration of relationship, with indefinite, permanent, full-time or long-term relationships suggesting economic dependence. Particular industry circumstances must be considered here, such as work that involves seasonal or intermittent work.
4. Repetitive and rote nature of work. The more repetitive, rote and unskilled the work, the more likely the employee will be seen as economically dependent on the potential joint employer, according to the DOL.
5. Integral to the business. If the employee’s work is integral to the potential joint employer’s business, the DOL is more likely to see the employee as economically dependent on that employer.
6. Work performed on premises. If the employee is working on premises controlled by the potential joint employer, then, according to the DOL, the employee is more likely to be dependent on the potential joint employer.
7. The potential joint employer performs administrative functions commonly performed by employers, such as payroll, providing workers’ compensation coverage, providing necessary facilities and safety equipment, housing, transportation, safety equipment and tools.  This is probably self-explanatory.

What determines if there is indirect control– or, in any case, enough control to be a vertical joint employer? It depends on the specific circumstances.  Let’s return to our construction worker. If the general contractor provides all necessary equipment, materials, workers’ compensation insurance and is responsible for the general health and safety of all workers on the site, can remove the worker from the site, controls his/her schedule, provides assignments, and both it and the subcontractor supervise the worker, they are likely vertical joint employers. Let’s take another example from the AI: A farm labor contractor hires and pays a worker to pick produce on a grower’s farm. The grower provides training, dictates the time of harvest, which fields the worker harvests, and determines pays the contractor per bucket, subtracting to cover workers’ comp. The worker works on the grower’s farm every harvest season, either through this contractor or another.  That’s vertical joint employment.

As with horizontal joint employment this all means that both employers are responsible for complying with the FLSA and/or MSPA (minimum wage, overtime pay, etc.) and both can be held liable, jointly and severally, for any violations found. If you contract with someone else to provide you labor, are quite possibly a vertical joint employer. Why should you care? Because you may be responsible for one or more workers that you thought were not your responsibility as an employer.  Contact your friendly employment counsel to confirm– and come back next week to look at an exciting new topic. It’s so exciting I can’t bear to tell you what is. See you then.

Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.

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