U.S. Dept of Labor's Administrator Interpretation Explains Joint Employer Status Under FLSA

We recently wrote an article about how courts and agencies are embracing the concept of sharing.
That is, forced sharing of responsibility among employers for the employment law violations of one.
(You can read our article here.  EMPLOYERS FACE NEW LIABILITY FOR OTHERS’ WORKERS )  As you'll see in that article, the National Labor Relations Board weighed in on joint employer status last year in a big decision.

Almost on cue, the U.S. Department of Labor has weighed in with one if its Administrator's Interpretations.  That is an opinion letter generally explaining an area of enforcement, which is not a full fledged regulation.  The Administrator Interpretation, No. 2016-1, is here.

Entitled "Joint employment under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act," the Administrator of the DOL's Wage and Hour Division seeks to explain how it will apply the Fair Labor Standards Act to "joint employer" relationships.

For the government,  "joint employer" relationships are helpful in different contexts.  And by "helpful in different contexts" I mean "ways to facilitate holding as many employers responsible as possible." Let the Administrator explain just some of the ways:

When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.4 Where joint employment exists, one employer may also be larger and more established, with a greater ability to implement policy or systemic changes to ensure compliance. Thus, WHD may consider joint employment to achieve statutory coverage, financial recovery, and future compliance, and to hold all responsible parties accountable for their legal obligations. the 

 Rather than issue a regulation, with its notice and comments, and possibility of congressional action to stop it, the Administrator has chosen to issue this opinion letter.  It is helpful for employers to understand the federal wage-hour agency's position on how it will treat multiple employer business relationships, such as staffing agencies, temporary firms, and subcontracts.  

Here are some of the highlights:

1.  The letter distinguishes between "horizontal" relationships and "vertical" relationships.  Horizontal means that an employee works for two employers, but they are related enough that each employer is responsible for the wage-hour issues of the other.  For example, if there is a joint employer relationship between two horizontal employers, then the hours worked in a week are aggregated for overtime purposes.   Vertical means that the employee works for an entity like a staffing agency, but economic realities are that the employee also works for a joint employer that receives the benefit of the employee's labor. 

2.  With respect to horizontal employment, the interpretation surveys cases and regulations and comes up with several bulleted factors that the DOL will consider relevant in deciding whether separately owned businesses may be considered joint employers of an employee:

• 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);
  
• do the potential joint employers have any overlapping officers, directors, executives, or managers;
  
• do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
  
• are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
  
• does one potential joint employer supervise the work of the other;
  
• do the potential joint employers share supervisory authority for the employee;
  
• do the potential joint employers treat the employees as a pool of employees available
  to both of them;
  
• do the potential joint employers share clients or customers; and
  
• are there any agreements between the potential joint employers. 
  

3.  With respect to vertical employment - like temporary staffing agencies' staff working at a factory owned by another company, the DOL explains that there sometimes is NO actual employment relationship with the joint employer, whereas there usually is an employment relationship with both horizontal employers.  So, the question is whether the DOL should impute - find - a relationship based on "economic realities."
The economic realities test will include an analysis of multiple factors including

• who directs and controls the work
• who directs and controls the employment conditions
• what is the permanency of the relationship - is this a long term contract?
• how repetitive and rote is the work?
• is the work integral to the potential joint employer's business?
• is the work performed on the joint employer's premises?
• does the joint employer perform administrative tasks for the employees that employers normally do?

The Administrator concludes that the joint employer relationship will be scrutinized in future cases to ensure broad coverage:

As a result of continual changes in the structure of workplaces, the possibility that a worker is jointly employed by two or more employers has become more common in recent years. In an effort to ensure that workers receive the protections to which they are entitled and that employers understand their legal obligations, the possibility of joint employment should be regularly considered in FLSA and MSPA cases, particularly where (1) the employee works for two employers who are associated or related in some way with respect to the employee; or (2) the employee’s employer is an intermediary or otherwise provides labor to another employer. 

The result is that employers may be found liable for wage-hour issues for which they are not necessarily aware of, or in control of. Therefore, employers must ensure that they account for these potential liabilities in their business relationships and contracts.

U.S. DOL Issues Administrator Interpretation Re Independent Contractors

The U.S. Department of Labor issues "Administrator Interpretations" now instead of opinion letters. In the past, the DOL would respond to individual employers' or  other constituents' questions about an FLSA issue.  The DOL would offer its opinion about the specific situation and disclaim that it broadly applied to other factual contexts, etc.

But in 2010, the DOL started issuing "Administrator Interpretations." These are not tied to any particular request for advice.  Rather, the Wage-Hour Administrator would pick a topic and offer an interpretation of an existing regulation.  Courts do not give these interpretations the same deference as actual regulations. But they are considered.  And the U.S. Supreme Court recently upheld the practice, discussed here.

With that background, you are ready to read the DOL's latest "Administrator Interpretation."  The agency has weighed in on the test for whether someone is an independent contractor or employee.  As you will see, in Administrator Interpretation 2015-1, the Administrator makes clear the DOL's enforcement position.  Here is the conclusion, verbatim:

In sum, most workers are employees under the FLSA’s broad definitions. The very broad definition of employment under the FLSA as “to suffer or permit to work” and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor. The factors should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee). The factors should be used as guides to answer that ultimate question of economic dependence. The correct classification of workers as employees or independent contractors has critical implications for the legal protections that workers receive, particularly when misclassification occurs in industries employing low wage workers.

(emphasis mine).

The Interpretation reaches that conclusion by analyzing the federal "economic realities" test for whether a worker is economically dependent on the employer (and therefore an employee) or in business for him or herself.  It should be noted that this economic realities test differs from the "right of control" test that California courts use, although there is overlap.  However, the Interpretation opines that the right to control is just one factor and that the economic realities test is actually broader, in that it sweeps more workers into employee status.   That is because, the Interpretation provides, the "economic realities" doctrine explains whom the employer "suffers or permits" to work, which is the definition of "employ" under the Fair Labor Standards Act.

The Administrator goes through familiar economic realities factors such as:
 - Is the work performed an integral part of the business?  (If so, employee)
 - Does the worker's managerial skill affect his / her opportunity for profit / loss (if so, contractor)
 - What is the nature of the worker's "investment" vs. the employer's investment relative to the work?
 - Does the work require special skill or initiative? (If so, contractor)
 - Is the relationship permanent or indefinite (if so, employee)
 - What is the nature of employer control.

As you will see, the Administrator emphasizes that no one factor is determinative.  The overarching issue is whether, based on the totality of the circumstances, the worker is in business for him or herself, or is economically dependent on the employer.  However, if the Administrator's views of the test carry the day in court, there will be far fewer independent contractors out there.

The Administrator Interpretation, No. 2015-1 is here. 

U.S. Supreme Court Upholds U.S. DOL's "Administrator Interpretations"

In 2010, the U.S. Department of Labor began issuing "Administrator Interpretations."  These are analyses of regulations that are broader and more comprehensive than the traditional opinion letters that DOL used to issue. The opinion letters generally were targeted to respond to requests made by individual stakeholders, often employers.  The Administrator Interpretations contain the DOL's view on how its regulations apply generally, not in response to a particular set of facts.

The DOL issued three of these in 2010, of which two remain published on its website. (Here)  These two address the definition of "clothes" under part of the Portal-to-Portal Act and whether mortgage loan officers qualify as "exempt" under the Fair Labor Standards Act.  In 2014, the DOL issued two more interpretations concerning home health care workers.

On the issue of mortgage loans officers, the DOL has changed its views several times in opinion letters over the years.  The 2010 Administrator Interpretation opines that mortgage loan officers are non-exempt.  Here.  That is because they primarily sell, and salespersons are not exempt under the "administrative test."

It has been argued that the Administrator Interpretations are actually in the nature of regulations, rather than opinion letters.  As such, the argument goes, they cannot be issued without going through the formalities of the federal Administrative Procedure Act.  That Act requires the agency to issue proposed regulations, followed by notice and comment by the public.  

There has also been a dispute as to whether an agency's "flip-flopping" or reversal of a prior interpretation is akin to a regulation, requiring APA procedures.  The Court of Appeals for the District of Columbia Circuit had held that when the DOL issues an interpretation that contradicts prior interpretations it is making what is in effect a new or amended regulation.

The U.S. Supreme Court in Perez v. Mortgage Bankers Association upheld the right of the DOL to issue these Administrator Interpretations without going through the APA requirements.   The Court disapproved the DC Circuit's approach and held that the Administrative Procedure Act does not require "notice and comment" procedures when the agency interprets its own regulations.

First, the APA does not require procedural safeguards with respect to agency interpretations generally.  But what is the difference between an interpretation and new rule?  Here is what the Court said:

the critical feature of interpretive rules is that they are “issued by an agency to advise the public of the agency’s construction of the statutes and rules which it administers.” Shalala v. Guernsey Memorial Hospital, 514 U. S. 87, 99 (1995) (internal quotation marks omitted). The absence of a notice-and-comment obligation makes the process of issuing interpretive rules comparatively easier for agencies than issuing legislative rules. But that convenience comes at a price: Interpretive rules “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.” Ibid.

The Supreme Court rejected the Mortgage Bankers Association's argument that the DOL's decision to reverse course is analogous to amending the regulation.   The Court also refused to address the argument that the Administrator Interpretation was in fact a "legislative rule" or regulation rather than an interpretation of an existing rule.  That is because, the Court wrote, the parties had not litigated the case under that theory.

All nine justices rejected the D.C. Circuit's approach. But three justices pointed out in concurrences and partial dissents that the majority's decision allowed too much discretion in the administrative agencies' power to interpret their own regulations.  These justices based their objections not on the Administrative Procedure Act, but on the constitution's separation of powers.  Those arguments did not carry the day in this case.  However, the three justices signaled a willingness to walk back some older precedents on the power of administrative agencies.

What does this all mean?
- the DOL will continue to be allowed to issue Administrator Interpretations
- Administrator Interpretations may be attacked as inconsistent with the underlying regulation, but under a very deferential standard of review by the courts.
- The courts do not have to give deference to an Administrator Interpretation the same way that it must give deference to a regulation, particularly when the interpretation is inconsistent over time.
- Mortgage loan officers are probably non-exempt under the FLSA for now and the reasonably foreseeable future.

This case is Perez v. Mortgage Bankers Association and the opinion is here. 

P.S. I wrote about the first three Administrative Interpretations here.  The Supreme Court issued its ruling on the definition of clothes in Sandifer v. U.S. Steel, which I wrote about here.