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Department of Labor Proposes New Interpretation of Joint Employer Status Under The Fair Labor Standards Act

April 9, 2019 Leave a comment

AET Headshot Photo 2019 (M1344539xB1386)By: Amanda Thibodeau

On April 9, 2019, the United States Department of Labor (“DOL”) published a notice of proposed rulemaking (the “NPRM”) to amend its existing regulations regarding so-called “joint employer” status under the federal Fair Labor Standards Act (the “FLSA” or the “Act”).

The FLSA requires covered “employers” to pay nonexempt employees at least the federal minimum wage for all hours worked and overtime for all hours worked over 40 hours in a workweek.  The Act also contemplates scenarios in which other “persons,” in addition to the nominal employer, may be jointly liable for wages due to an employee under the Act.  This concept is generally known as joint employer wage liability (although the term “joint employer” is not specifically used in the language of the FLSA).  Joint employer status under the FLSA implicates questions such as:

  • Is a franchiser liable for the wage obligations of its franchisees?
  • Is an institutional investor liable for the wage obligations of its portfolio businesses?
  • Is a parent corporation liable for the wage obligations of its subsidiaries?

In 1958, the DOL issued regulations interpreting joint employer status under the Act.  Those regulations instructed that multiple persons or entities may be jointly liable for wage obligations due to an employee if they are “not completely disassociated with” respect to the employment of an employee.  This open-ended standard, which remains the current DOL benchmark on the subject, has been the subject to debate for nearly sixty years.

The DOL indicates that the purpose of the NPRM is to make the determination of joint employer status under the FLSA “simpler and more consistent.”

A New Test For Joint Liability Status

The NPRM proposes a four-factored test to determine when a person or entity shares wage liability for an employee with the nominal employer.  The four factors are whether the person or business entity:

  • hires or fires the employee;
  • supervises and controls the employee’s work schedule or conditions of employment;
  • determines the employee’s rate and method of payment; and
  • maintains the employee’s employment records.

The NPRM clarifies that that “the potential joint employer must actually exercise . . . one or more of these indicia of control to be jointly liable under the Act.” (Emphasis supplied).  The reserved, but unexercised, contractual right to act in relation to an employee “is not relevant for determining joint employer status.”   In addition, the NPRM provides a set of examples that illustrate the limits of the four-factor test:

  • The potential joint employer’s business model—for example, operating as a franchisor—does not make joint employer status more or less likely under the Act.
  • The potential joint employer’s contractual agreements with the employer requiring the employer to, for example, set a wage floor, institute sexual harassment policies, establish workplace safety practices, require morality clauses, adopt similar generalized business practices, or otherwise comply with the law, do not make joint employer status more or less likely under the Act.
  • The potential joint employer’s practice of providing a sample employee handbook, or other forms, to the employer; allowing the employer to operate a business on its premises (including “store within a store” arrangements); offering an association health plan or association retirement plan to the employer or participating in such a plan with the employer; jointly participating in an apprenticeship program with the employer; or any other similar business practice, does not make joint employer status more or less likely under the Act.

What’s Next?

It should be noted that NPRM is a proposal.  The DOL is now soliciting comments from interested parties with respect to the NPRM, and will begin the process of developing a final rule on the subject.  Whether the DOL ultimately adopts the rules proposed in the NPRM is unclear.  What is clear is that the DOL is focused on clarifying standards with respect to this contentious area of employment law.  Morse Barnes-Brown Pendleton will continue to monitor, and report on this subject.

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Morse Barnes-Brown Pendleton’s Employment Law Group regularly advises clients with respect to compliance with the Fair Labor Standards Act and its developments.

For more information, please contact Amanda Thibodeau or Matthew Mitchell.

U.S. Department of Labor Proposes Significant Changes to FLSA Overtime Regulations

March 25, 2019 Leave a comment

2015-01-05_8-57-41By: Matthew Mitchell

On March 7, 2019, the U.S. Department of Labor announced a long-awaited Notice of Proposed Rulemaking (“NPRM”) that proposes new regulations that relate to overtime and minimum wage exemptions under the Fair Labor Standards Act (“FLSA”). The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked, and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

Read about the proposed changes, including how they could change employee exempt or nonexempt status in our Employment Law Alert.

Federal District Court Reinstates EEO-1 Pay Data Reporting Requirements (For Now)

March 22, 2019 Leave a comment

MLM Headshot Photo 2019 (M1341570xB1386)By: Matthew Mitchell

In September 2016, the U.S. Equal Employment Opportunity Commission (“EEOC”) announced plans to collect employee compensation data as a component to its annual EEO-1 employer information reporting requirement. This pay data reporting requirement – known as “Component 2” – was slated to go into effect in March 2018, and would have required all private employers with over 100 employees, and certain smaller, government contractors, to report W-2 wage information and total hours worked, for all employees, by race, ethnicity, and sex, within 12 proposed pay bands. Component 2 was an aspect of Obama-era reforms aimed at strengthening EEOC capacity to identify and prevent pay discrimination.

In August 2017, the White House Office of Management and Budget (“OMB”), under the Trump Administration, stayed the implementation of Component 2, indicating that Component 2 disclosure requirements were unreasonably burdensome for employers – the U. S. Chamber of Commerce estimated that Component 2 would result in $400 million in additional administrative costs to employers. That action by the OMB prompted a lawsuit by the National Women’s Law Center and the Labor Counsel for Latin American Advancement against the OMB and the EEOC.

On March 4, 2019, the U.S. District Court for the District of Columbia issued an opinion reinstating Component 2, concluding that the OMB did not have a sufficient basis to support its decision to stay Component 2. The Court’s decision may have significant implications for employers. The current EEO-1 Report filing deadline is on May 31, 2019, and it is unclear whether Component 2 pay data disclosures will be required for the May 31 reporting cycle.

It remains to be seen whether the ruling is appealed, whether the EEOC issues any special instructions in light of the ruling, or whether the EEOC takes steps to revise its EEO-1 reporting guidelines (although the EEOC does not presently have a quorum to effect such a change). Morse Barnes-Brown Pendleton’s Employment Law Group will continue to monitor this issue, and will provide updates as they become available.

For more information, please contact Matt Mitchell.