February 26, 2016 | Industry Insights, Insights

Recent DOL Guidance Spotlights Joint Employer Issue, Misclassification of Employees

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The Department of Labor’s Wage and Hour Division (WHD) over the last couple of years has issued clarification guidance on several occasions on joint employment under the Fair Labor Standards Act (FLSA). The newest guidance on January 20, 2016 stressed the broad definition of “employment” under the FLSA and the agency’s belief that many workers are classified incorrectly and will focus its enforcement activity on these areas. According to the DOL, “when employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as minimum wage, overtime compensation, unemployment insurance, and workers’ compensation.” This can result in significant employment practices consequences and workers’ comp issues for all employers, including in the transportation and global logistics services industries.

Joint employment exists when an employee’s work for both employers is aggregated for purposes of FLSA rights.  For example, if an employee works 30 hours in a week for one employer and 30 hours for another, the employee will be entitled to 20 hours of overtime if the employers are deemed joint employers. Moreover, either company can be held responsible for the full amount of wages or other liability unless they have contracted otherwise.

The DOL is particularly interested in joint employment due to the increase by companies in sharing employees, utilizing staffing agencies, or contracting out segments of their business. These arrangements add complexity to the contours of the employer/employee relationship and, in the agency’s view, create opportunities for workers to lose statutory protections.

In the January 2016 guidance, the DOL discussed two types of joint employment: horizontal and vertical. Horizontal joint employment may exist where an employee is directly employed by two separate entities, but the entities are associated. The horizontal analysis focuses on the relationship between the two employers. Examples of horizontal joint employment may include separate restaurants that share economic ties and managers, or home health care providers that share staff and management.

Vertical joint employment, on the other hand, may occur where an employee is directly employed by an intermediary entity, such as a staffing agency or subcontractor, but the “economic realities” of the work performed demonstrate that the employee is “economically dependent” on another entity that receives some benefit from the work.  The vertical analysis focuses on the relationship between the employee and the potential joint employer. As with the DOL’s July 2015 guidance regarding misclassification, the agency stressed that the analysis should not be limited to the potential joint employer’s “control” over the employee. The scope of joint employment under the FLSA is therefore broader than under the common law, where an employment relationship depended entirely on the amount of control exercised by the employer.

There are some high-profile joint-employer cases, including McDonald’s, that are being tested in court. In fact, a recent case involves a few trucking subsidiaries of a logistics company, which were sued for misclassifying drivers as independent contractors. The class-action suit alleges that drivers of the subsidiaries failed to receive minimum wage, get meal breaks and rest breaks and reimbursement of business expenses, among other allegations. The parent company says there is no merit to the case.

According to an article in the Wall Street Journal, the trucking subsidiaries being sued perform what is known as drayage trucking services, or hauling goods the short distance between seaports and nearby rail yards and warehouses, a key link in the national supply chain. This model, however, has increasingly come under legal scrutiny, in drayage as well as other sectors of the transportation industry. In fact, similar claims were made against several drayage trucking companies with one firm reaching a settlement that’s pending a judge’s approval.

The trend towards finding increasingly more employers liable for these types of employment violations is clear. The need for taking proactive measures to prevent such violations, including being vigilant on how employees are classified is paramount. Review all your arrangements to determine employee or independent contractor status, including those with co-employers to ensure that responsibility for FLSA obligations, employee benefit plan coverage, tax withholding, employment tax, Affordable Care Act reporting, and similar obligations have been properly allocated between the parties.

Roanoke Trades specializes in providing insurance solutions to the transportation and logistics services industries, including Employment Practices Liability and Workers’ Compensation – two areas in which the joint employer issue can have a direct impact. For more information about our products, please contact one of our professionals at 1-800-ROANOKE (800-762-6653).

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