U.S. Department of Labor Issues Expansive Interpretation of Joint-Employer Liability Under the Fair Labor Standards Act: Non-Binding Administrative Interpretation Takes Position That Joint-Employer Liability Under the Fair Labor Standards Act Should Be Based on the “Economic Realities” of the Working Relationship and Not the Traditional Degree of Control Test

Sullivan & Cromwell LLP - January 25, 2016

On January 20, 2016, the U.S. Department of Labor issued an Administrative Interpretation (the “Guidance”) setting forth the Department’s position on joint-employer status for purposes of liability under the Fair Labor Standards Act (the “FLSA”).  The Guidance states that the analysis of whether a “vertical joint employment” relationship exists—in which case, the worker should be considered an employee of both the employer of record (e.g., a staffing agency, vendor or subcontractor) and the company that contracts with the employer to provide services—should turn on “the broader economic realities of the working relationship” between the worker and the company and not the company’s “control over the employee,” which is the traditional test applied by the Department and courts.  The Guidance provides “seven economic realities factors” that it suggests courts use to assess joint employment claims under the FLSA.  The Guidance, which follows a June 2015 proposal by the Department regarding changes in overtime regulations and a July 2015 Administrative Interpretation regarding misclassification under the FLSA, is part of the Department’s effort to expand the scope of FLSA coverage, as well as the current administration’s effort to use agency rules and interpretations to advance its agenda.