February 2016

AGENCY UPDATES

The Department of Labor Offers Guidance on Vertical and Horizontal Joint Employment Relationships

On January 20, 2016, the U.S. Department of Labor (DOL) issued an Administrator’s Interpretation on joint employment under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Workers Protection Act (MSPA).  Both the FLSA and MSPA define employment as “to suffer or permit to work,” which is notably broader than the common law definition of employment that focuses on the amount of control the employer exercises over the employee.  This guidance is important because whether an employee has more than one employer is crucial in determining employees’ rights and employers’ obligations under the FLSA, MSPA and the Family Medical Leave Act (FMLA).  Namely, in a joint employment relationship, employers must combine the hours worked by the employee for both employers to determine whether the employee is entitled to overtime compensation under the FLSA.  Additionally, because the FMLA uses the same definition of “joint employer” as the FLSA/MSPA, employer coverage and employee eligibility is dependent on this determination.  This most recent Administrator’s Interpretation focused on horizontal and vertical joint employment relationships and offered guidance and factors to consider under both.

Horizontal Joint Employment

In horizontal joint employment, the employee has a relationship with two or more employers and the employers are sufficiently associated or related with respect to the employee.  A determination of horizontal joint employment focuses on the relationship between the employers.  Common examples of horizontal joint employers include separate restaurants that share the same managers and home care providers that share staff and have common management. 

The FLSA (29 C.F.R. 791.2) provides guidance in determining whether a horizontal joint employment relationship exists by examining the following criteria. 

1. Who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners)?
2. Do the potential joint employers have any overlapping officers, directors, executives or managers?
3. Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)?
4. Are the potential joint employers’ operations inter-mingled (i.e., is there only one administrative operation for both employers)?
5. Does one potential joint employer supervise the work of the other?
6. Do the potential joint employers share supervisory authority for the employee?
7. Do the potential joint employers treat the employees as a pool of employees available to both of them?
8. Do the potential joint employers share clients or customers?
9. Are there any agreements between the potential joint employers?

This is not an all-inclusive list, and not each of the factors needs to be present to establish a horizontal joint employment relationship.

Vertical Joint Employment

In vertical joint employment, the employee has a relationship with one employer and is economically dependent (or employed) by another entity involved in the work.  A determination of vertical joint employment focuses on the relationship between the employee and the employer getting the benefit of the employee’s work.  Common industries where vertical joint employment relationships exist include staffing, home healthcare, construction, agriculture, general construction, warehousing and logistics and hospitality. 

The MSPA (29 C.F.R. 500(h)(5)(iv)), describes seven factors to be considered when analyzing any vertical joint employment relationship (whether under the MSPA, FLSA or FMLA).  These factors focus on whether the employee is “economically dependent” on the potential joint employer who, via the arrangement with the intermediary employer, is benefitting from the work.  Any reference to “potential joint employer” refers to the entity that did not directly hire the employee for the work to be performed.

1. Whether the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract oversight (focus is on direction, control and supervision of the potential joint employer)?
2. Whether the potential joint employer has the power to hire or fire the employee, modify the employment conditions or determine the rate of pay?
3. The permanency and duration of the relationship between the employee and the potential joint employer (indefinite, full-time or long-term relationship implies the employee is economically dependent on the potential joint employer)?
4. Whether the work is repetitive and rote in nature (if the work to be performed is relatively unskilled it lends itself to a joint employment relationship)?
5. Whether the employee’s work is an integral part of the potential joint employer’s business?
6. Whether the work is performed on the potential joint employer’s premises?
7. Whether the potential joint employer is performing administrative functions commonly performed by employers?

These factors are not all-inclusive and not each factor needs to be present to establish a vertical joint employment relationship. 

The Equal Employment Opportunity Commission Reveals Proposed Changes Regarding Reporting Requirements by Large Employers and Federal Contractors on Employer Information Reports  

On January 29, 2016, the Equal Employment Opportunity Commission (EEOC) unveiled proposed changes that could require large employers (more than 100 employees) and federal contractors (50 or more employees and a government contract worth more than $50,000) to provide data on hours worked and wages paid to their employees (W-2 earnings), including by gender, race and ethnicity.  The information would be included on employer information reports, or EEO-1s, beginning September 2017.  The information would be reported across 10 job categories and 12 pay bands.  Although it will not require the reporting of wages of each individual employee, employers have significant concerns about the security of the data provided. 

The EEOC claims the proposed change will “assist employers in evaluating their pay practices to prevent pay discrimination and strengthen enforcement of [] federal anti-discrimination laws.” The agency is expected to use the pay data to assess discrimination complaints as well as to guide agency investigations, and will likely use the data to unjustifiably target companies for expensive government audits and investigations.

This requirement will no doubt force employers to put more energy and resources into preparing their EE0-1s.  This move highlights that reducing pay discrimination is a key priority for the government, even though the aggregate data collected is unlikely to be of much use since the job categories on the EEO-1 are very broad and generic and there are no controls for key nondiscriminatory variables that could explain perceived differences in pay. Moreover, there is no proposal for how to account for the hours worked by exempt employees.  Will these hours now need to be tracked presenting another administrative burden?

Employers who have not already done so are encouraged to audit their pay practices to identify and correct and gender or race based disparities.

There is a public comment period that will close on April 1, 2016.  Employers are strongly encouraged to submit their feedback and concerns.  Comments may be submitted to http://www.regulations.gov.

JUDICIAL DEVELOPMENTS

Follow Federal Law to Calculate Overtime on Flat Sum Bonuses as there is No Specific Applicable California Law

Alvarado v. Dart Container Corp. (2016) 2016 Cal.App.LEXIS 26

According to the employer’s written policy, an attendance bonus of $15 per day would be paid to any employee scheduled to work a weekend shift who completed the full shift.  The employer calculated overtime paid on these flat sum attendance bonuses by applying federal law (Title 29 of the Code of Federal Regulations section 778.110), which simply requires employers to pay employees overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rate of pay. 

The employee filed suit seeking to apply a more favorable calculation per the California Department of Labor Standards and Enforcement Manual (Manual).  For overtime due on flat sum bonuses, the Manual indicates employers must pay employees overtime pay for hours worked in a workweek over 40 in a workweek at a rate of one and one-half their “regular bonus rate,” which is determined by dividing the bonus by the maximum legal regular hours worked during the period to which the bonus applies.  Citing prior California published case law, the appellate court upheld the trial court’s ruling that the Manual did not have the force of law and must be disregarded in favor of the federal regulations directly on point.