Joint employers are two or more businesses that share control of an employee.
Learn how the sharing of employees by joint employers works and how to determine if your business is a joint employer to ensure that you comply with employment laws.
What Are Joint Employers?
Joint employers refer to two or more individuals or entities that have joint control of the terms and conditions of an employee's job. Notably, such employers are both jointly and severally liable—that is, each is independently liable—for the employee's required minimum wage and overtime pay under the Fair Labor Standards Act (FLSA).
How Joint Employers Work
Businesses that employ workers must comply with various federal and state laws. For instance, businesses that are covered under the FLSA must pay covered non-exempt workers the minimum wage and overtime pay as required by the law. The concept of joint employment may also apply to workers' compensation insurance under state law.
Fulfilling that obligation as an employer is typically straightforward, as most workers only have one employer. They perform work for the same business that hired them. However, some employees are shared by two or more businesses that act as joint employers. When two or more businesses share workers, disagreements can occur over which company is responsible for complying with federal or state employment laws.
To protect workers' rights and help employers understand their obligations under the law, the U.S. Department of Labor established rules regarding joint employment. When joint employment exists, each of the employers is responsible for complying with laws relating to minimum wage and overtime pay.
For example, say that Chen works a standard 40-hour week for two FLSA-covered employers: Company A, a subcontractor, and Company B, the organization that subcontracted the work. One week, he works 25 hours for Company A and another 25 hours for Company B. If the two companies are considered joint employers, Chen is entitled to 10 hours of overtime pay because the FLSA would regard him as having worked 50 hours in a week. If, however, the two companies aren't joint employers, Chen won't be entitled to overtime pay, because he hasn't exceeded 40 hours at either company.
Companies A and B are also both jointly and severally liable for Chen's overtime pay. That is, if Chen were to miss out on the overtime pay and win a money judgment against the two companies as a whole, he could collect the full value of the judgment from any one of them even though they're both partially responsible.
As you can see, being a joint employer can have enormous financial and legal implications for employers.
Types of Joint Employers
Joint employers can be any group of people other than a labor organization not acting as an employer, including associations, business trusts, corporations, individuals, legal representatives, partnerships, and public agencies.
The specific types of employers vary according to the joint employment arrangement, with the two main arrangements being:
- Horizontal: In horizontal joint employment, the employee has two or more employers that are separate companies but have a relationship or affiliation with each other. Typically, the employee performs work for each company. Franchises are a common type of employer in this arrangement. For example, different locations of a restaurant chain that are separate legal entities may jointly employ a worker.
- Vertical: In vertical joint employment, one employer known as a direct employer provides workers to a secondary business. The direct employer hires and pays the worker, whereas the secondary business benefits from the employee's services but doesn't hire or pay them. Direct employers include staffing agencies, subcontractors, or franchise operators. Secondary businesses include businesses that subcontract work or retain staffing agency employees. An example of this arrangement is a staffing agency (the direct employer) that hires employees to work at a manufacturing plant (the secondary business).
An employer who doesn't directly hire or pay an employee may still be regarded as a joint employer and may be obligated to pay overtime under the FLSA.
How To Tell if Your Firm Is a Joint Employer
There is no single approach for determining whether your business is a joint employer under the law. Different tests apply when making the determination under federal and state law, and in some cases even to the same level of the law. For example, the Fourth Circuit Court of Appeals applies a different test than other federal Courts of Appeal do to determine whether a firm is a joint employer under the FLSA.
The FLSA issued a "final rule" in January 2020 stipulating that four factors indicating a firm's ability to control an employee may be considered (but may not be in and of themselves sufficient) to determine whether a firm is an FLSA joint employer. These include whether the business:
- Hires or fires the employee
- Substantially controls the employee’s schedule or the terms of employment
- Decides on the employee’s pay and payment method
- Keeps records on the employee’s employment
However, in September 2020, a federal court in New York invalidated a portion of the final rule, stating that the four-factor test alone was too limited to make the determination of a joint employer under the FLSA.
How To Minimize Your Liability as a Joint Employer
Amidst the legal flux of determining which employers count as joint employers under the FLSA, there are still a few measures a conscientious business can take to avoid litigation concerning their obligations to employees:
- Do your research: Come up to speed with FLSA and state wage and hour laws and regulations. The U.S. Department of Labor's website for employers is a great place to start.
- Create a bulletproof contract: A clear, well-written contract that defines each company's duties may be the best defense against disagreements concerning the obligations of each employer for minimum wage and overtime pay.
- Act in accordance with your role: If you're a secondary employer, for example, distance yourself from the direct employer's employees and avoid attempts to control how they work.
You may still be regarded as a joint employer under the law even if you distance yourself as a secondary business.
- Seek counsel: Enlist an attorney to help you keep tabs on potential new rulemaking by the Department of Labor and determine whether you're a joint employer.
- Joint employers are two or more businesses that share control of an employee.
- Such employers are each independently liable for minimum wage and overtime pay regulations under the FLSA and potentially workers' compensation insurance under state law.
- Joint employment arrangements are typically horizontal, including two companies with some type of relationship or affiliation, or vertical, including a direct employer that provides employees to a secondary business.
- There is no firm test for determining whether a firm is a joint employer. The FLSA has offered a four-factor test that may be considered when making the decision, though state rulings have viewed the test as too narrow.
- Business can minimize their liability as joint employers if they research federal and state employment regulations, write strong contracts, act in accordance with their respective employment roles, and work with lawyers.